Morning Wrap

Today ’s Newsflow Equity Research 12 Nov 2015 Upcoming Events Select headline to navigate to article

Grafton Group Revisions largely discounted with recent Company Events share price moves 12-Nov Grafton Group; IMS Hibernia REIT; Interim Results Hibernia REIT H1 results show NAV c.3c ahead of ICG; Q3 2015 Results expectations 16-Nov FBD Holdings; Q3 2015 Results Green REIT; IMS ICG Q3 outperforms, upgrading FY15/16 EBITDA and PT 17-Nov easyJet; Q4 2015 Results 19-Nov CRH; Q3 2015 IMS Record Airport passenger numbers augers well for Dalata Economic View Apple announcements highlight ongoing attractiveness of Ireland for FDI UK Economic View House prices set to rise further Banks Orders to repossess c.4,500 homes initiated year to date AIB Group Moody’s indicates proposed capital Economic Events reorganization is positive for bondholders Ireland

United Kingdom 12-Nov RICS House Price Balance 13-Nov Construction Output SA YoY

United States 13-Nov U. of Michigan Sentiment Retail Sales Advance MOM 16-Nov Empire Manufacturing

Europe 13-Nov GDP SA YoY 16-Nov CPI YoY

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Goodbody Stockbrokers (trading as Goodbody) is regulated by the Central . For the attention of US clients of Goodbody Securities Inc, this third-party research report has been produced by our affiliate Goodbody Stockbrokers. Please see the end of this report for analyst certifications and other important disclosures. Goodbody Morning Wrap

Grafton Group Revisions largely discounted with recent share price moves

Grafton Group has reported a 4.8% increase in lfl sales for the ten months to end of October. Recommendation: Buy While slightly ahead of expectations, the UK market has remained competitive, Belgium is Closing Price: £6.50 challenging and manufacturing (a high margin business) has been weaker than our forecasts. As a result we are downgrading FY15 operating profits by 2% to £126.9m. This is in line with Robert Eason +353-1-641 9271 management guidance for operating profit to be below consensus (£130.9m) by 3-4%. At [email protected] the eps level the revision is -3% as our financial charge was a touch light. For FY16, we are leaving estimates largely unchanged with a bit more caution on underlying markets offset by the accretion (4%) of the recently announced acquisition in the Netherlands.

Underlying sales growth in UK merchanting was 4.7% in Jul-Oct (3.5% Q1 and 5.1% Q2), which encouragingly represented a pick-up from 3.7% in July / Aug. However, markets remain competitive which continues to hold back the drop-through. A similar improving trend was experienced in Irish merchanting with lfl sales growth going from 6.7% in Jul-Aug to 7.7% for the four months. The Irish Retail business also saw a pick-up with growth of 6.9% in Jul-Oct (5.7% Jul-Aug) but this was partly due to destocking of seasonal products after a wet summer.

The higher margin and predominantly a UK manufacturing business performed below our expectations with sales declining by 1.7% in the four months. This reflects difficult yoy comps (+30% in Jul-Oct 2014) and the moderation in UK housing starts (-4% Q2). Belgium has also been more difficult with lfl sales down 2-3% in Jul-Oct and as a consequence this business is probably going to be nearer breakeven versus our previous expectation of profits of circa €1m.

Given peer statements to date and general talk of a slowing UK merchanting sector, the market was concerned coming into this statement (share price down over 5% yesterday). We therefore believe the 2-4% revisions to our FY15-FY16 forecasts are already largely priced in. In addition, comfort can be taken by the pick-up in lfl trends in both Ireland and the UK in Sep-Oct, albeit markets remain competitive.

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Hibernia REIT H1 results show NAV c.3c ahead of expectations

Hibernia REIT released H116 results for the 6 months to September 30. EPRA NAV per share Recommendation: Buy was 122c, +9.2% from 111.8c at the end of March. The outturn is c.3c ahead of our 118c Closing Price: €1.29 expectation. The market valuation of the portfolio was €739m and it is in a net cash position Eamonn Hughes of €115m. Hibernia announced the payment of a 0.7c Interim dividend. Hibernia REIT has +353-1-641 9442 reported a H116 pretax profit of €73.7m, with net rental income of €17.4m. The other key [email protected] P&L item was revaluations, at €63.6m which were €14m ahead of forecasts, mainly attributable to the Dublin CBD office Development/Refurbishment portfolio (+26% since

March), but also due to continued contributions from the office assets (+6.8%) and Residential (+7.4%).

Elsewhere, Hibernia has announced it is putting in place a new €400m, 5 year revolving credit facility with a number of banks. The margin is 205bp and replaces the existing €100m facility. The facility is intended for the development pipeline and future acquisitions where management are tracking a number of potential transactions (both large and small). Management expect the through the cycle loan to value to be in the range of 20-30%.

This is a positive set of numbers and highlights its continued asset management capabilities. We expect the announcement of the larger revolving credit facility is an indication of confidence from management that it believes it can deploy the capital in the near term. We are likely to increase our FY16 NAV from our €1.28 forecast by 1-2c on the back of stronger valuations. We reiterate our Buy call.

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ICG Q3 outperforms, upgrading FY15/16 EBITDA and PT

ICG has reported a very strong peak summer trading period. Its Q3 EBITDA rose 36% to Recommendation: Buy €39m on a 10% rise in revenues. With 9M15 EBITDA now at €64m, and with good volume Closing Price: €5.06 momentum continuing into the first five weeks of Q4, we increase FY15 EBITDA forecasts from €70m to €73.5m. Jack Diskin +353-1-641 9193 [email protected] Looking at volumes ytd (through early November), car volumes (+6%) are ahead of our +5% FY forecast, though this was helped in Sept/October by the Rugby World Cup driving volumes on Irish Sea routes and we do expect this growth to moderate through the remainder of Q4. However, RoRo continues to outperform and we have upgraded our FY volume estimate from +8% to +9% to reflect this. Volumes on the Container & Terminal side are in line with our FY projections.

The upgrade to FY15 RoRo volumes, which is a high margin revenue stream for the business, combined with updating our fuel estimate for recent falls in the spot price since early October, leads us to increase EBITDA by €2.6m, to €73.5m. This is now a cumulative ytd upgrade on this estimate of €20m (37%). We have upgraded FY16 EBITDA by €1m to €79.8m. This reflects our updated fuel estimate for FY16 forward curve and USD rates along with a slight moderation on our car/pax growth assumptions by ~0.5pts to highlight positive FY15 one-offs (RWC) which make for difficult FY16 comps. This is a cumulative upgrade of €22.5m (39%) on our FY16e EBITDA since the beginning of this year.

We remain positive into FY16, given the recent acquisition of container vessels to be chartered next year, along with our expectation of continued growth in RoRo (+4%) despite high 2015 growth. Based on historic FCF conversion of EBITDA relative to peers, we continue to value ICG on 12.5x FY16e EBITDA. We move our PT to €5.60.

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Dalata Hotel Group Record Dublin Airport passenger numbers augers well for Dalata

According to press reports this morning and yesterday (Irish Times), Dublin Airport is set to Recommendation: Buy see record passenger traffic in 2015, with passenger numbers +15% in the year to date. In Closing Price: €4.48 2014, 21.7m passengers passed through the Airport but by last weekend it had already Kevin McDermott reached 22m and it expects to see more than 23.5m passengers through the Airport this +353-1-641 9162 year. Growth is being driven across all segments, from both domestic and overseas [email protected] customers.

The record passenger numbers will not come as a huge surprise, but it offers further support to our positive view on Dalata (77% of rooms based in Ireland), as increases in overseas visitors have been a key driver for the Irish hotel market. We believe that Dalata has a quality management team and its proven track record gives us confidence it can generate significant profits from its current portfolio and future acquisitions and investments. Our current PT is 560p, +25% upside.

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Economic View Apple announcements highlight ongoing attractiveness of Ireland for FDI

We don’t normally comment on FDI announcements into Ireland given their frequency, but Dermot O’Leary +353-1-641 9167 yesterday’s news is worth making an exception for. [email protected]

Apple announced that it will be expanding its already large presence in Ireland with the creation of a further 1,000 jobs by 2017 (on top of the 5,000 currently). This follows an earlier announcement in February that it would build its largest data centre outside of the US in the West of Ireland. The IDA estimate that Apple already supports c.18,000 jobs across the country, directly and indirectly. With the new jobs, Apple could be potentially supporting c.1% of total employment in Ireland.

The other remarkable feature about this announcement is that it comes at a time when Ireland and Apple are under investigation for corporation tax practices dating back to 1991. Clearly, this latest investment suggests that the company has few concerns about its operations in the country. To the contrary, it sees Ireland as an integral part of its continued growth.

Ireland has had an excellent track record over recent years in terms of inward FDI, especially in the area of IT. Yesterday was one of the biggest jobs’ days for the IDA, given that an additional 300 jobs were separately announced in Dublin. While there are periodic bouts of concerns abroad about Ireland’s ability to maintain these trends, the evidence suggests that the country continues to remain attractive to some of the biggest companies in the world. The IDA is playing a large role in this success.

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UK Economic View House prices set to rise further

UK house price growth picked up in October with the RICS rising to 49%, from 44%, and Juliet Tennent +353-1-641 9469 ahead of expectations of 45%. The price increases continue to be driven by a lack of supply [email protected] with the New Instructions component slipping to -10, from -6 in September. Meanwhile, New Buyer Enquiries, the demand component, slipped to 12 (was 18) but remained firmly in positive territory. Prices are rising across the country with all regions showing positive price balances and the strongest price performances evident outside London.

Given the tight supply conditions it is unsurprising that expectations in terms of both Price (28) and Sales (31) remain high. In addition, rising real wages and low interest rates are supporting demand and it is likely that prices will squeeze higher in the coming months.

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Banks Orders to repossess c.4,500 homes initiated year to date

The Irish Times leads this morning with a story that banks have sought to repossess almost Eamonn Hughes +353-1-641 9442 4,500 homes since the start of the year in data released to the newspaper by the Courts [email protected] Service of Ireland. This figure is in addition to the 7,100 dwellings lenders had already moved to repossess by January 1st. Of the 4,440 civil bills lodged for repossession, some Colm Foley +353-1-641 6042 82% related to principal private residence, with 16% for buy-to-lets and 2% other dwellings. [email protected] The figures compare with a total of 6,420 applications at the same stage last year. The data Sarah Dunne shows that 1,088 repossession orders were granted by the courts in the year to date, up +353-1-641 0482 almost 70% yoy. [email protected]

The data shows that banks continue to repossess properties, though yoy the pace of repossession requests is slowing. This may also be a function of banks pursuing alternative mortgage restructuring options with individuals in distress, including extensions, split mortgages and arrears capitalisation.

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AIB Group Moody’s indicates proposed capital reorganization is positive for bondholders

Moody’s has published an update on AIB (Ba1/Ba2 stable, b13) after the proposed capital Recommendation: N/R reorganisation at the end of last week, indicating that the approval for its capital plans by the Closing Price: €0.07 SSM is credit positive for the bank’s bondholders. Eamonn Hughes

+353-1-641 9442 Moody’s is anticipating that the bank’s tangible common equity will rise to a pro-forma [email protected] 10.0% from 8.8% as of June 30 and the actions on capital will also improve the bank’s profitability due to lower funding costs on newly issued hybrid capital instruments. Moody’s also believes the approval paves the way for the privatisation of the bank and provides clarity to investors on the treatment of the hybrid instruments that comprise a large part of its capital. It added that the regulatory approval signalled that AIB has exited the most critical phase of its recovery, with the actions simplifying its regulatory capital.

AIB’s fully loaded capital ratio was 8.3% in June and we estimate the capital reorganisation and H2 profit (c.120bps) implies AIB should finish the year at c.12.5%. Transition rules tier 1 capital - 17.4% in June - will reduce by c.2.8% (the cost of the redemption of some preference shares) to c.14.6%, though H2 profits should see it back up to 15.6% by year end. The T2 (125bps) and AT1 (85bps) add combined c.2.1% to total capital. We estimate a fully loaded total capital ratio of 15.4% by year end, noting that AIB is set to add c.300bps of capital over our forecast horizon to end 2018. These strong capital ratios augur well for the potential T2 and AT1 issuance noted by the bank in its capital update last Friday.

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Market Data Top 10 Covered Companies

Company Price Mkt Cap Absolute Relative to European Sector P/E (LC) (LCM) 1 Day 1 Week 1 Mth Ytd 1 Day 1 Week 1 Mth Ytd 2015f 2016f AIB Group 0.07 37,692 1.4 -4.0 -7.7 -8.9 0.8 -3.6 -11.6 -17.6 23.4 26.3 CRH 25.32 20,648 0.3 -0.6 6.5 27.2 -0.4 -0.2 2.1 15.1 22.6 13.9 14.57 20,164 0.2 -0.6 16.1 48.5 -0.5 -0.2 11.2 34.4 13.1 15.4 IAG 6.15 12,492 1.3 6.0 9.2 26.4 0.7 6.5 4.7 14.3 12.0 8.3 Wolseley 36.55 9,505 0.7 -4.3 -0.9 -0.8 0.3 -3.9 -0.3 -1.4 14.2 14.5 72.95 12,825 0.9 1.1 9.0 27.8 0.2 1.5 4.5 15.6 24.2 22.1 Bank of Ireland 0.33 10,557 0.9 -1.2 -5.0 4.2 0.3 -0.8 -8.9 -5.8 10.7 11.4 Mondi 14.92 7,245 1.2 -0.5 0.5 42.1 0.6 -0.1 -3.7 28.5 15.1 13.7 easyJet 18.02 7,158 1.2 4.0 6.3 7.8 0.8 4.5 7.0 7.2 13.0 11.8 DCC 57.60 5,082 -0.6 7.5 16.8 62.1 -1.0 7.9 17.6 61.2 16.8 23.1

Indices ISEQ performance

% Price 1 Day 1 Week 1 Mth Ytd ISEQ 6,558.61 0.38 0.27 6.88 25.53 6,600 6,400 FTSE 100 6,297.20 0.35 -1.80 -1.85 -4.10 6,200 DAX 30 10,907.87 0.70 0.58 8.04 11.24 6,000 5,800 CAC 40 4,952.51 0.82 0.09 5.34 15.91 5,600 FTSE Eurofirst 300 1,494.18 0.65 -0.46 4.29 9.18 5,400 Nasdaq 5,067.02 -0.32 -1.47 4.90 6.99 5,200 5,000 S&P 500 2,075.00 -0.32 -1.30 2.98 0.78 4,800 Dow Jones 17,702.22 -0.32 -0.93 3.62 -0.68 4,600 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Nikkei 225 19,691.39 0.10 4.04 6.79 12.84

Exchange Rates

Current Px 1 day Px 1 Week Px Dec14 Avg Ytd

Stg/€ 0.706 0.708 0.706 0.776 0.728 STOXX 600 performance US$/€ 1.073 1.069 1.086 1.210 1.115 CHF/€ 1.077 1.077 1.079 1.202 1.066 420 410 JPY/€ 131.864 131.813 132.060 145.079 134.715 400 Bonds 390 380 Yield 1 Day Yld 1 Wk Yld 1 Mth Yld 3 Mth 370 360 US 2 Yr 0.86 - 0.86 0.23 0.19 350 US 10 Yr 2.34 - 0.12 0.25 0.20 340 330 UK 2 Yr 0.72 0.02 0.02 0.13 0.00 320 Nov-14 Feb-15 May-15 Aug-15 Nov-15 UK 10 Yr 2.05 0.03 0.06 0.30 0.22

BD 2 Yr -0.36 0.00 -0.04 -0.36 -0.09

BD 10 Yr 0.61 -0.01 0.01 0.61 0.02

Irish 10 Yr 1.15 -0.04 -0.00 -0.03 -0.02

Commodities FTSE 250 performance

% Current 1 day 5 day 1 Mth 1 Yr Brent (ICE $/bbl) 45.81 -3.44 -3.40 -12.99 -43.91 18,000 Gasoline (NYM $/Gal) 1.33 -2.38 -2.93 -6.16 -36.80 17,500 Heat Oil (NYM $/Gal) 1.45 -2.61 -2.81 -9.00 -41.36 17,000 Nat.Gas 2.26 -2.46 -4.56 -9.55 -46.72 Gold $/oz 1,085.90 -0.11 -0.28 -5.70 -6.10 16,500 Silver $/ozt 14.44 -0.76 -4.24 -9.69 -7.26 16,000

Copper U$/MT 4,931.00 -0.05 -1.38 -7.29 -26.27 15,500

Wheat $/BU 4.95 0.82 -5.45 -2.85 -5.81 15,000 Nov-14 Feb-15 May-15 Aug-15 Nov-15

Source : FactSet

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Issuer & Analyst Disclosures

Analyst Certification The named Research Analyst certifies that: (1) All of the views expressed in this research report accurately reflect my personal views about any and all of the subject securities and issuers. (2) No part of my remuneration was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this report.

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Goodbody is acting as joint financial advisor and joint broker to UTV Media on the proposed sale of UTV television assets. Goodbody was the co-lead manager in an offering of securities in Permanent TSB Group Holdings Plc in the last 12 months. Goodbody was the co-lead manager for Hibernia REIT Plc for a public fund raising in the past 12 months. CRH Plc has been an investment banking client of Goodbody’s in the past 12 months. International Consolidated Airlines Group has been an investment banking client of Goodbody’s in the past 12 months. Goodbody Stockbrokers acts as corporate broker to AIB Group, , , Datalex, FBD Holdings, First Derivatives, Grafton Group, Greencore, Hibernia REIT, ICG, Kingspan, , Paddy Power, UDG Healthcare, and UTV Media A complete list of the companies that Goodbody Stockbrokers makes a market in is available at Regulatory Disclosures

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We would like to inform you that Eamonn Hughes holds shares in AIB Group

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