Morning Wrap

Today ’s Newsflow Equity Research 14 Mar 2016 Upcoming Events Select headline to navigate to article

ARYZTA LFLs back into the black in Q2 Company Events Strong set of maiden results (5% beat) 14-Mar Applegreen; ; Q2 2016 Results US Building Materials Strong growth in Highways in 15-Mar Geberit; Q4 2015 Results 17-Mar Air France-KLM; FY results January HeidelbergCement; Q4 2015 Results Irish construction Momentum in recovery continues LafargeHolcim; Q4 2015 Results Lufthansa; Final Year Results 21-Mar Datalex; Q4 2015 Results Large residential portfolio up for sale/Construction activity demand/Cairn deal Hibernia REIT Purchase of One Earlsfort Terrace for €19.2m Economic View Political stalemate continues Economic View DBRS upgrades Ireland’s credit rating to A high Economic Events Ireland

United Kingdom

United States

Europe

Goodbody Capital Markets Equity Research +353 1 6419221 Equity Sales +353 1 6670222 Bloomberg GDSE

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

ARYZTA LFLs back into the black in Q2

ARYZTA maintained its full year EPS guidance at 365-385c in its interim statement this Recommendation: Buy morning, though with adjustments in respect of disposals in the period (€100m annual sales, Closing Price: €44.00 implies 360-380c EPS). H1 EPS of 158.4c was slightly ahead of our 155.7c, down 1.9% on reported H115 but 2.5% ahead of H115 excluding Origin. LFL for the Group of 0.4% Liam Igoe +353-1-641 9450 compares with -0.9% for the same period last year. Cash flow improved as working capital [email protected] was squeezed and capex fell €109m.

The improved H116 LFL growth of 0.4% implies that lfl growth in Q2 for continuing operations was 0.8%, an improvement on -0.4% seen in Q116. Comments from management on its performance in the period suggests that this improvement should continue in the coming quarters but this will be gradual. New business wins remained high in the period (+8.2% in H1 vs 7.7% in Q1), but losses including SKU rationalisation also remained high (-8.0% in H1 vs -8.1% Q1).

The biggest improvement in the headline lfl was in North America, which improved from - 5.6% in Q116, to -2.4% in Q2. This was partly due to some unwinding of the SKU rationalisation process, which was mainly centred on ARYZTA’s operations in that region, but actually more so to high wins (see table).

Europe’s lfl continued to be robust at +3.8% in Q216 versus a very strong +5.5% in Q116. As in Q1, the growth is being driven by ARYZTA’s bakeries, where volumes have benefited from strong sales by its larger customers (including retail discounter chains). Margins were lower due to lower growth in Food Solutions.

Given that headline lfl data is showing accelerating growth in the first two quarters of the year we expect that ARYZTA’s bottom of the range valuation multiples (notably its PER) will edge upwards in the coming quarters. There should be improving visibility in future quarters’ potential since the headline data should reflect that the SKU rationalisation is petering out over the next year. We expect to bring EPS closer to the top end of the adjusted range.

Home…

Page 2 14 Mar. 16 Goodbody Morning Wrap

Applegreen Strong set of maiden results (5% beat)

Applegreen has reported strong FY15 results this morning, with gross profit of €125.9m Recommendation: Buy (+30% yoy) and adjusted net income of €15.8m (+33% yoy). This is c.5-6% ahead of our Closing Price: €4.50 expectations. Adjusted EPS was 22.2c per share. Patrick Higgins

+353-1-641 0403 The Group’s total estate grew by 48 stations (+32% yoy) over the course of 2015 vs our [email protected] forecast of 42 new stations. The total number at year-end was 200. Excluding Dealer sites, 23 new stations were added (+16% yoy) vs our forecast of 29. Of these, 17 were PFS stations while 6 were service areas. In addition, there was a total of 27 rebrands (vs. Goodbody forecast of 15).

In Ireland, total gross profit grew by 23%, driven by estate rollout (37 new sites – 7 PFS stations, 5 service areas and 25 dealer sites) and LFL growth of 6.5% in store and food gross profit (aided by 10 rebrands/upgrades). Fuel like-for-like gross profit growth was -0.6% due to a difficult prior year comp and fuel price volatility.

The UK business also delivered a stellar performance, with total gross profit growing 50% in the period. Again this was driven by estate expansion (8 new sites – 7 PFS stations and 1 service area) and LFL growth of 8.5% in store and food gross profit (aided by 8 rebrand/upgrades). Fuel lfl gross profit was +4.9%.

Net debt came in at c. €5m in the year vs our forecast of a €5m net cash position. The variance is primarily due to a higher capex spend (€59m vs. €48m forecast) which was driven by the faster than expected rebrand programme and service area expansion.

Estate expansion has continued apace in 2016, with 4 new sites added in RoI (3 PFS and 1 service area) and 5 new sites the UK (3 PFS and 2 service areas). Today’s results and the positive start to 2016 reaffirms our positive stance on Applegreen. After adjusting our model for the current sterling headwind (c. 8%), we leave our current forecasts for the year broadly unchanged.

Home…

Page 3 14 Mar. 16 Goodbody Morning Wrap

US Building Materials Strong growth in Highways in January

Mirroring commentary from industry players and other data points, the more detailed ARTBA Robert Eason +353-1-641 9271 data shows that it has been a very strong January for US highways. The value of [email protected] construction put in place for Highways and Streets is up 32% in January from +14% in December with Pavements growing by 35% (+10% in Dec). David O’Brien +353-1-641 9230 david.a.o’[email protected] The strong start to the year is encouraging for CRH and HEI and has coloured a Sarah Reilly positive rhetoric from both management teams on the region. While growth is +353-1-641 6080 helped by favourable weather, the FAST act is likely providing increased confidence [email protected] for the state & local government to embark on projects given certainty around Jason Molins funding. +353-1-641 9141 [email protected]

Home…

Irish construction Momentum in recovery continues

The latest Irish construction PMI shows a very strong results for February. The overall index Robert Eason +353-1-641 9271 came in at 68.8 from 63.6 in January, representing the highest level in over ten years. This [email protected] was driven by strength across the board with residential (71.2 in Feb from 65.8 in Jan) and commercial (68.5 in Feb from 62.4 in Jan) gaining momentum. Civil engineering also David O’Brien +353-1-641 9230 improved mom to 62.3 from 54.7 in January. david.a.o’[email protected]

Sarah Reilly Grafton Group is the best way to gain exposure to this strong recovery with c.20% +353-1-641 6080 of group sales in Ireland, a key differentiator against its lightside peers. [email protected]

Jason Molins +353-1-641 9141 [email protected]

Home…

Page 4 14 Mar. 16 Goodbody Morning Wrap

Cairn Homes Large residential portfolio up for sale/Construction activity demand/Cairn deal

Cairn Homes has announced the first transfers of the Project Clear assets and a further site Recommendation: Buy acquisition. Three separate development sites (15% of the Project Clear portfolio) have Closing Price: €1.17 moved into direct ownership, including a six acre site at Moyglare in Maynooth, Co Kildare. Colm Foley In addition, it has also acquired an additional site adjacent to the Moyglare site for €27m +353-1-641 6042 from York Capital, adjoining NUI Maynooth. The combined site has the potential for 430 [email protected] units, plus a 500—bed student accommodation scheme.

Separately, media reports over the weekend indicate that New Generation Homes is looking to sell around half of its development sites for c.€400m. The company has appointed advisors to find buyers for up to 25 development sites in Dublin and the surrounding commuter counties. The disposal plan was prompted by approaches to the company following the Project Clear transaction, according to sources in the reports, which was the large portfolio sale by Ulster Bank, which was won by Cairn Homes and Lone Star. According to various reports over the weekend, all of the players in the race for the Project Clear transaction have been approached by New Generation’s advisors, with Cairn, Michael O’Flynn and Lone Star all mentioned.

Elsewhere, we note strong activity in the Ulster Bank PMI data for construction activity. The index for February expanded at its fastest pace since the index was launched in 2000, with growth in the housing and commercial sectors, but with residential momentum leading the way (up from 65.8 to 71.2). Elsewhere, the Irish Times reports that Hays Ireland has indicated demand for construction staff rose by 46% in February, with a quarter of the new jobs in housebuilding.

Post the Argentum and Moyglare deals, we estimate Cairn has c.€50m of investment capacity, though Project Clear disposals will supplement this figure. On any other transactions, we note Cairn in its recent final results indicated that it “continues to assess strategic opportunities and funding options in that regard, including further debt, jvs and equity funding”. On construction industry demand, we build in c.15% higher prices into our future development projects in our models, noting that some cost pressures will have been alleviated recently by the weakness of sterling. Home…

Page 5 14 Mar. 16 Goodbody Morning Wrap

Hibernia REIT Purchase of One Earlsfort Terrace for €19.2m

Hibernia on Friday afternoon paid €19.2m for a 21,700 sq ft office building, One Earlsfort Recommendation: Buy Terrace. The building houses the solicitors, Evershed, over 5 floors plus basement and has Closing Price: €1.26 19 underground car spaces. It is part of a mixed-use development, a couple of hundred Colm Foley metres from St Stephens Green. The building is fully occupied on a lease till 2026. However, +353-1-641 6042 the next review is due this September and Hibernia has struck a deal with the tenant for the [email protected] rent to move from €26 sq ft to €45 sq ft, implying a potential 5.3% yield on review in September. The capital value per sq ft is €880.

The building has planning permission for two additional floors which could add c.6,000 sq ft, providing some medium term refurbishment or development angles for Hibernia. We note the comment in the release that it looks forward to “working with Eversheds to help meet their future accommodation needs”, bearing in mind the asset is within c.300-400m of Hibernia’s Harcourt Square asset. Though not directly relevant, we note that press reports over the weekend indicate that the Denis O’Brien owned building, named LXV on St Stephens Green has been bought by CNP Assurance for a net yield of 4.3%. This was the first building to hit €60 sq ft in the current cycle, a helpful valuation reference.

The One Earlsfort Terrace transaction represents another city centre purchase for Hibernia, with some asset management options and further diversifies the tenant profile. The purchase leaves Hibernia with about €275m of additional investment capacity.

Home…

Economic View Political stalemate continues

More than two weeks on from the Irish general election, the formation of a government Dermot O’Leary +353-1-641 9167 appears to be no closer to being formed. In fact, the number of potential permutations being [email protected] suggested appears to be as large as ever. While a Fine Gael/Fianna Fail "arrangement" holds out the only possibility of a stable government, significant differences of opinion remain within the two parties about the merits of the various options available. For example, Fine Gael's Leo Varadkar has ruled out supporting a Fianna Fail minority government, even if the FF leader Michael Martin wins more votes in the next election of a Taoiseach (Irish Prime Minister).

With Taoiseach Enda Kenny having to carry out important business in his caretaker role in Brussels and Washington over the coming days, there is little chance of substantive progress in the week ahead. With next week shortened by holidays, it is unlikely that a conclusion will be reached then either. Indeed, it appears that we are quite a number of weeks away from a conclusion, whether that be the formation of a government or another election.

Thus far, the market has taken the uncertainty in its stride, with 10-year yield spreads (over German bunds) reducing since the inconclusive election results. Of course, this must be seen in the context of the latest QE announcement from the ECB. It is questionable how long the market can remain relaxed if the uncertainty is to be prolonged.

Home…

Page 6 14 Mar. 16 Goodbody Morning Wrap

Economic View DBRS upgrades Ireland’s credit rating to A high

The ratings agency DBRS has upgraded Ireland’s credit rating to A high (an improvement of Dermot O’Leary +353-1-641 9167 one notch on their scale) and revised its outlook for the country from stable to positive. The [email protected] agency cited the materially improved outlook for Ireland's debt sustainability on foot of the strong economic recovery and progress made in reducing the fiscal deficit. DBRS notes that the upgrade was made in spite of the upcoming Brexit election and the inconclusive Irish election, which it believes is unlikely to alter the fiscal outlook. The agency also upgraded the short-term foreign and local currency issuer ratings to R-1 (middle).

The moves follows an upgrade by Fitch’s on Ireland’s rating from A- to A in February 2016 and Moody’s outlook change from stable to positive. As such, whilst helpful, it follows similar moves by other agencies in recent weeks.

Home…

Page 7 14 Mar. 16 Goodbody Morning Wrap

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 2016f 2017f AIB Group 8.90 24,306 4.7 15.0 69.5 33.6 2.0 14.9 50.4 42.8 17.2 25.0 CRH 24.97 20,367 4.8 0.8 18.1 -6.5 2.2 0.6 4.8 -0.0 15.7 12.4 13.72 18,783 2.4 -2.9 2.5 -8.6 -0.2 -3.1 -9.0 -2.3 14.9 11.3 IAG 5.41 10,997 2.7 -0.7 13.1 -11.4 0.0 -0.9 0.3 -5.3 6.2 5.1 HeidelbergCement 70.78 14,044 4.1 0.8 16.8 -6.4 1.4 0.6 3.6 0.0 12.9 12.3 79.80 14,029 1.5 0.8 13.5 4.6 -1.1 0.6 0.7 11.8 24.2 21.3 Wolseley 37.53 9,760 1.3 -3.5 15.3 1.7 -0.8 -3.7 3.7 3.3 15.4 13.6 Paddy Power Betfair 93.05 7,777 -2.1 -4.1 6.2 2.5 -4.1 -4.3 -4.6 4.1 30.3 24.5 Bank of Ireland 0.29 9,456 8.1 4.3 11.9 -13.6 5.4 4.2 -0.8 -7.7 11.8 10.9 Mondi 13.34 6,477 1.5 -1.5 14.0 - -1.1 -1.6 1.1 6.9 11.1 11.0

Indices ISEQ performance

% Price 1 Day 1 Week 1 Mth Ytd 7,000

ISEQ 6,341.75 2.46 -0.35 10.51 -6.62 6,800 FTSE 100 6,139.79 1.71 -0.96 10.89 -1.64 6,600 DAX 30 9,831.13 3.51 0.07 12.32 -8.49 6,400 CAC 40 4,492.79 3.27 0.81 15.30 -3.11 6,200 FTSE Eurofirst 300 1,347.47 2.72 0.21 12.69 -6.26 6,000 Nasdaq 4,748.47 1.85 0.67 11.29 -5.17 S&P 500 2,022.19 1.64 1.11 10.56 -1.06 5,800 Dow Jones 17,213.31 1.28 1.21 9.92 -1.22 5,600 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Nikkei 225 16,938.87 0.51 -0.45 7.80 -11.01

Exchange Rates

Current Px 1 day Px 1 Week Px Dec15 Avg Ytd

Stg/€ 0.775 0.779 0.774 0.737 0.767 STOXX 600 performance US$/€ 1.116 1.115 1.101 1.086 1.098 CHF/€ 1.098 1.101 1.094 1.087 1.097 420

JPY/€ 126.671 126.401 125.265 130.676 127.217 400

Bonds 380

Yield 1 Day Yld 1 Wk Yld 1 Mth Yld 3 Mth 360

US 2 Yr 0.95 0.02 0.95 0.30 0.07 340 US 10 Yr 1.98 0.05 0.11 0.32 -0.14 320

UK 2 Yr 0.56 0.03 0.15 0.26 -0.02 300 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 UK 10 Yr 1.57 0.04 0.09 0.27 -0.24

BD 2 Yr -0.47 -0.01 0.06 -0.47 -0.12

BD 10 Yr 0.27 -0.04 0.03 0.27 -0.27

Irish 10 Yr 0.86 -0.09 -0.07 -0.15 -0.17

Commodities FTSE 250 performance

% Current 1 day 5 day 1 Mth 1 Yr Brent (ICE $/bbl) 40.39 0.85 4.31 34.36 -29.81 18,000 Gasoline (NYM $/Gal) 1.44 0.37 8.42 53.37 -20.92 17,500 Heat Oil (NYM $/Gal) 1.22 0.16 4.88 24.40 -33.09 17,000 Nat.Gas 1.82 1.90 9.36 -8.63 -35.48 Gold $/oz 1,264.75 -0.14 -1.00 1.91 9.98 16,500 Silver $/ozt 15.50 1.51 0.45 -0.96 -0.90 16,000

Copper U$/MT 4,941.00 0.42 0.47 10.44 -14.60 15,500

Wheat $/BU 4.76 -0.26 3.26 3.82 -4.66 15,000 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16

Source : FactSet

Page 8 14 Mar. 16 Goodbody Morning Wrap

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.

Regulatory Information Goodbody Stockbrokers, trading as Goodbody, is regulated by the Central Bank of Ireland. In the UK, Goodbody is authorised and subject to limited regulation by the Financial Conduct Authority. Goodbody is a member of the Irish Stock Exchange and the London Stock Exchange. Goodbody is a member of the FEXCO group of companies. This publication has been approved by Goodbody Stockbrokers. The information has been taken from sources we believe to be reliable, we do not guarantee their accuracy or completeness and any such information may be incomplete or condensed. All opinions and estimates constitute best judgement at the time of publication and are subject to change without notice. The information, tools and material presented in this document are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities.

Conflicts of Interest Goodbody Stockbrokers has procedures and policies in place to identify and manage any potential conflicts of interest that arise in connection with its research business. Goodbody Stockbrokers’ analysts and other staff who are involved in the preparation and dissemination of research operate and have a management reporting line that is independent to its Corporate Finance business. Information barriers are in place between the Corporate Finance arm and the Research arm to ensure that any confidential and or price sensitive information is handled in an appropriate manner.

Our Investment Research Conflicts of Interest Policy is available at Conflicts of Interest

Investors should be aware, that, where appropriate, research may be disclosed to the issuer(s) in advance of publication in order to correct factual inaccuracies only and not to materially amend the research in any way. Goodbody Stockbrokers is satisfied that it has operational procedures in place, which ensure that such disclosures will not compromise the report’s objectivity.

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. Cairn Homes has been an investment banking client of Goodbody’s in the past 12 months. UTV Media Plc has been an investment banking client of Goodbody’s in the past 12 months. Paddy Power Betfair plc has been an investment banking client of Goodbody’s in the past 12 months. Goodbody Stockbrokers acts as corporate broker to AIB Group, Applegreen, ARYZTA, Cairn Homes, Datalex, FBD Holdings, First Derivatives, Grafton Group, Greencore, Hibernia REIT, ICG, Kingspan, , Paddy Power Betfair, UDG Healthcare, and Wireless Group The list of companies for which Goodbody acts as market maker and on which it provides research, is available at Regulatory Disclosures

Page 9 14 Mar. 16 Goodbody Morning Wrap

Other disclosures

We would like to inform you that Robert Eason holds shares in Kingspan We would like to inform you that Robert Eason holds shares in SIG

A description of this company is available at Company Descriptions

All prices used in this report are as at close of business of the previous working day unless otherwise indicated.

A summary of our standard valuation methods are available at Valuation Methodologies

A summary of share price recommendations and whether material investment banking services have been provided to these companies is available at Regulatory Disclosures

Other important disclosures are available at Regulatory Disclosures

Goodbody Stockbrokers updates its recommendations on a regular basis. A breakdown of all recommendations provided by Goodbody Stockbrokers is available at Regulatory Disclosures Where Goodbody Stockbrokers has provided investment banking services to an issuer, details of the proportion of buys, holds and sells attributed to that issuer will also be included. This is updated on a quarterly basis.

The date on which stock recommendations were first released for all stocks mentioned in this report are available at http://www.goodbody.ie/research_disclosures/regulatorydisclosures/index.html. If a different recommendation has been made in the previous twelve months, this will also be disclosed here.

Recommendation Definitions Goodbody Stockbrokers uses the terms “Buy”, “Sell” and “Hold. The term “Buy” means that the analyst expects the security to appreciate in excess of 10% over a twelve month period. The term “Sell” means that the security is expected to decline in excess of 10% over the next twelve months. The term “Hold” means that the analyst expects the security to neither appreciate more than 10%, or depreciate more than 10% over the next twelve months.

On 26th November, 2012, the terms “Add” and “Reduce” were removed from the Recommendation Definitions and both were replaced with the “Hold” recommendation. Any Previous Recommendation that refers to either an “Add” means that the analyst expected the security to appreciate by up to 15% over a twelve month period. Any Previous Recommendation to “Reduce” means that the analyst expected the security to decline by up to 15% over the next twelve months.

In the event that a stock is delisted the firm will automatically cease coverage. If however the firm ceases to cover a stock for any other reason the firm will disclose this fact.

Distribution of research to clients of Goodbody Securities Inc (GSI) in the US

GSI distributes third-party research produced by its affiliate, Goodbody Stockbrokers GSI is a member of FINRA and SIPC GSI does not act as a market-maker. GSI or it affiliates hold a proprietary position and/or controls on a discretionary basis more than 1% of the total issued share capital of Applegreen, and Hibernia REIT

This information was current as of the last business day of the month preceding the date of the report. An affiliate of GSI may have acted, in the past 12 months, as lead manager/co-lead manager of a publicly disclosed offer of the securities in this company. Investors should be aware that an affiliate of GSI may have provided investment banking or non-investment-banking services to, and received compensation from this company in the past 12 months or may provide such services in the next three months. The term investment banking services includes acting as broker as well as the provision of corporate finance services, such as underwriting and managing or advising on a public offer. All transactions by US persons involving securities of companies discussed in this report are to be effected through GSI.

Disclaimer While all reasonable care has been taken in the production and dissemination of this report it is not to be relied upon in substitution for the exercise of independent judgement. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you.

Private customers having access, should not act upon it in anyway but should consult with their independent professional advisors. The price, value and income of certain investments may rise or may be subject to sudden and large falls in value. You may not recover the total amount originally invested. Past performance should not be taken as an indication or guarantee of future performance; neither should simulated performance. The value of securities may be subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities.

All material presented in this report, unless specifically indicated otherwise is copyright to Goodbody Stockbrokers. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of Goodbody Stockbrokers.

Goodbody, Ballsbridge Park, Ballsbridge, Dublin 4, Ireland T (+353 1) 6670400 W www.goodbody.ie E [email protected] Page 10 14 Mar. 16