Morning Wrap

Today ’s Newsflow Equity Research 18 Apr 2016 Upcoming Events Select headline to navigate to article

easyJet Monarch – a doable deal but it wouldn’t be Company Events transformational 19-Apr Associated British Foods; Q2'16 results Danone; Q1'16 results reports strong Q1, augurs well for 20-Apr Packaging Corp. of America; Q1'16 results Playtech’s financial business Punch Taverns PLC; Q2'16 results

Travis Perkins Homebase moves to everyday low price strategy Dalata Hotel Group Announces new Belfast city centre hotel Paper & Packaging Positive US box shipments data for March Economic View Talks on government formation go on and on Banks Ulster Bank cuts rates following switcher campaign Economic Events Ireland

United Kingdom

United States 19-Apr Housing Starts Mar'16

Europe 19-Apr Current Account Feb'16 21-Apr Consumer Confidence Indicator Feb'16

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

Goodbody (trading as Goodbody) is regulated by the Central Bank of Ireland. 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

easyJet Monarch – a doable deal but it wouldn’t be transformational easyJet is reportedly weighing a bid for Monarch Airlines, which is based at Luton airport and Recommendation: Hold is owned by Private Equity group Greybull Capital. Other prospective bidders are said to Closing Price: £14.47 include Chinese airline HNA, however, easyJet could acquire 100% of the carrier, unlike HNA, Mark Simpson which would be restricted to a 49% stake under restrictions on foreign ownership of airlines. +353-1-641 0478

[email protected] Greybull bought Monarch in October 2014 and restructured the business by cutting headcount by 700, resolving pension issues and investing £125m. This saw EBIT move from a £90m loss in the October 2014 fiscal year to a profit of circa £40m for FY15; EBITDAR was said to be over £140m. The last trading statement, issued December 7th 2015, stated that the restructuring programme had delivered net savings of around £100m, with a further benefit of £30m coming from lower jet fuel prices.

In terms of network overlay, the deal makes some sense, with Monarch having consolidated its operations on short-haul leisure European routes, particularly Spain and Portugal, and flying 7m seats in calendar 2015 vs easyJet’s 77m. Spain is its largest market (64%) followed by Portugal (14%). Gatwick is its largest airport in the network, accounting for 30% of seats while Luton accounts for 12% of seats. Birmingham and Manchester account for 24% each of its total network capacity. In terms of the cross over with easyJet, Monarch would add over 2m seats to easyJet’s 20m at Gatwick, helpful as it consolidates its operations at the North Terminal, and offer a significant capacity increase at Luton, Manchester and Birmingham.

Could the deal be done financially by easyJet? While we have no visibility on Monarch’s balance sheet, an 8.2x EBIT multiple (EZJ’s current) would equate to £330m, with easyJet forecast to have £414m net cash at as end September FY16, so yes. However, is the transformational deal we would want to see easyJet do? No, unless they could strip considerably more cost from the Monarch Business.

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Playtech Plus500 reports strong Q1, augurs well for Playtech’s financial business

Plus500, the CFD trading business which Playtech was blocked from acquiring last year, Recommendation: Buy released its Q1 (end March) this morning. In Q1, Plus500 reported revenues +4%, new Closing Price: £8.12 customers -12% and actives flat yoy. While the yoy trends appear muted they have to be Gavin Kelleher viewed in the context of a very tough comparative with Q115 due to the exceptional Swiss +353-1-641 0423 Franc movement seen in that period. The performance in Q116 also shows that the group [email protected] appears to have overcome the regulatory issues it experienced last year. As previously announced Plus500UK recommenced on-boarding clients in January. Relative to Q4, Q1 revenue is +26%, new customers are +85% and actives are +38%. The Q1 performance will have been helped by the ongoing market volatility seen during the period. Management re- iterated that it believes it can achieve a higher EBITDA margin (FY15: 48%) in 2016, and it is confident that Plus500 will continue to grow and deliver another successful year.

The strong performance seen from Plus500 in Q1 due to the ongoing market volatility augurs well for Playtech's financial trading business (c.14% of Playtech's group revenue in FY16). At the time of its FY results, Playtech guided down revenue and margin expectations for its financial trading business in 2016 due to increased compliance/regulatory improvements and a shift in marketing channels. We forecast underlying revenues to remain flat during FY16 (Q1: -9% YOY) and EBITDA margins of 28%.

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Travis Perkins Homebase moves to everyday low price strategy

Wesfarmers completed the acquisition of the UK Homebase DIY chain at the end of February Recommendation: Hold and over the last couple of weeks has embarked on a strategic change in direction on Closing Price: £17.74 pricing. It is moving away from high-low promotions to one of everyday low prices. The Robert Eason impact of this shift has been clearly evident in the pricing of Dulux paint which Homebase +353-1-641 9271 dropped to £10 for a 2.5 litre can which at the time compared to £16.42 at B&Q (or 2 for [email protected] £22) and £18.99 at (or 3 for 2). This was then followed on Friday with both B&Q and Homebase going for £8.47/can.

With Wesfarmers trying to change the perception of Homebase as being expensive, there is likely to more competitive pricing promotions in the coming months. This is likely to put increased pressure on Wickes (c.20% of Travis Perkins’ group sales) and is one of the reasons why we are relatively cautious on the stock.

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Dalata Hotel Group Announces new Belfast city centre hotel

Dalata Hotel Group announced last Friday evening that it has signed a development contract Recommendation: Buy for a new 206 room Maldron Hotel on Brunswick Street in central Belfast. It will be a 3 star Closing Price: €4.36 hotel and represents a £21m investment. The construction of the new 14 storey hotel will Kevin McDermott commence in June 2016 and is expected to be completed in the first half of 2018 (demolition +353-1-641 9162 work on the site has already begun). [email protected]

We believe this announcement by Dalata is positive given that the new hotel is well located in a city centre. RevPar in Belfast was strong in 2015 delivering growth of 12%. Following this investment management still has a further €100m to invest in the business. We remain positive in management’s ability to identify good investment opportunities and re-iterate our BUY recommendation.

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Paper & Packaging Positive US box shipments data for March

Following what we viewed as incrementally positive containerboard pricing data from David O’Brien +353-1-641 9230 Germany on Thursday, the US Fibre Box Association published strong volume data on Friday. david.a.o’[email protected] Corrugated box shipments increased by 2.2% yoy in March, the strongest pace of growth since the first quarter of 2015. As is normal, seasonally high inventories were reduced in Robert Eason +353-1-641 9271 March but still remain above 10 year highs. [email protected]

We take a lot of comfort from the data releases last week and look for this to continue in the coming weeks, which should at the very least support share prices in the sector.

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Economic View Talks on government formation go on and on

53 days and counting. That’s how long it has been since Ireland’s general election and yet Dermot O’Leary +353-1-641 9167 there is no guarantee that one will be formed this week. With Fianna Fáil having agreed to [email protected] support a minority government led by Fine Gael, the key focus over the coming days will be the terms of such an arrangement. Negotiators from both parties will resume talks today, with the issues likely to be how binding the Fianna Fáil’s support will be, the price of that support and how long it will last.

It is not until these issues become known will we have more clarity on the actual make-up of the next government. Last week it appeared that a group of independent politicians would join the government, but they then pulled back until they learned the details of the FG/FF arrangement. Over the weekend it has emerged that the Labour Party has been approached with a view to joining a coalition with FG, Independents and possibly the Green Party. While there are mixed reports on how willing Labour politicians are to make such a move, they too are waiting on the outcome of the talks between FG and FF. Were they to decide to go into government, it would require the support of the wider party, thus pushing back the formation of a government even longer.

Another vote for Taoiseach is due to take place this Wednesday but reports this morning suggest that it may not go ahead at all given that talks will still be ongoing until later in the week between FG and FF. Sovereign debt markets continue to be relaxed about the ongoing impasse, but important policy issues, particularly in the area of housing, continue to simmer in the policy vacuum.

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Banks Ulster Bank cuts rates following switcher campaign

The Irish Independent reports that Ulster Bank has agreed to cut mortgage rates for Eamonn Hughes +353-1-641 9442 homeowners that signed up to the switcher campaign “One Big Switch”. Ulster Bank has put [email protected] in place a four year fixed rate of 3.29% for those who have signed up with an LTV below 60%. The bank will also pay €1,500 towards the legal fees of those switching and provide a Colm Foley +353-1-641 6042 free property valuation. The deal will also be available to existing Ulster Bank customers. [email protected] Ulster Bank has also cut a number of its other rates. The Variable High Value Loyalty Rate Sarah Dunne has been reduced by 0.15% to 3.20%, it has also reduced 3 and 5 year fixed rates, with the +353-1-641 0482 rates depending on the LTV. [email protected]

Central Bank data published last week indicated that the switcher market was 8% of approvals up from 5% last year, but still well below the 15-25% level in the mid- 2000s. Increased competition is likely to lead to higher levels of activity in the switcher market, which is unhelpful for the Irish banks.

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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 2016f 2017f AIB Group 9.01 24,606 1.2 -8.1 -12.1 35.3 1.6 -11.0 -12.6 44.4 17.4 25.3 CRH 25.67 20,933 -0.5 2.4 4.0 -3.9 -0.2 -0.9 3.4 2.6 16.1 12.8 Ryanair 13.08 17,907 -1.4 -1.4 -2.8 -12.9 -1.1 -4.5 -3.3 -7.0 14.2 10.8 HeidelbergCement 77.87 15,451 -0.3 4.6 8.0 3.0 0.0 1.3 7.4 9.9 14.2 13.5 Kerry Group 81.30 14,293 -0.6 -1.0 1.1 6.5 -0.3 -4.2 0.5 13.7 24.6 21.7 IAG 5.34 10,855 -1.7 1.2 -1.6 -12.5 -1.4 -2.0 -2.1 -6.7 5.9 4.9 Wolseley 38.50 10,012 -2.3 -2.5 0.9 4.3 -2.0 -4.2 -1.2 3.0 15.8 14.0 Betfair 96.35 8,065 -0.3 0.5 6.6 6.1 0.0 -1.2 4.4 4.7 31.2 25.8 Mondi 13.29 6,453 -2.4 2.7 -2.1 -0.4 -2.0 -0.6 -2.7 6.3 11.9 11.4 Bank of Ireland 0.24 7,837 -3.2 -1.6 -10.4 -28.4 -2.9 -4.8 -10.9 -23.6 9.8 9.1

Indices ISEQ performance

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

ISEQ 6,211.36 -0.84 0.36 0.32 -8.54 6,800 FTSE 100 6,343.75 -0.34 2.25 3.32 1.62 6,600 DAX 30 10,051.57 -0.42 4.46 1.19 -6.44 6,400 CAC 40 4,495.17 -0.36 4.46 0.50 -3.06 6,200 FTSE Eurofirst 300 1,350.38 -0.26 3.54 0.66 -6.06 6,000 Nasdaq 4,938.22 -0.16 1.80 4.43 -1.38 S&P 500 2,080.73 -0.10 1.62 3.21 1.80 5,800 Dow Jones 17,897.46 -0.16 1.82 3.74 2.71 5,600 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Nikkei 225 16,848.03 -0.37 6.49 -1.57 -11.48

Exchange Rates

Current Px 1 day Px 1 Week Px Dec15 Avg Ytd

Stg/€ 0.797 0.796 0.809 0.737 0.775 STOXX 600 performance US$/€ 1.130 1.126 1.141 1.086 1.108 CHF/€ 1.092 1.089 1.087 1.087 1.095 420

JPY/€ 122.843 122.975 123.674 130.676 126.617 400

Bonds 380

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

US 2 Yr 0.73 -0.04 0.73 -0.24 -0.12 340 US 10 Yr 1.75 -0.04 0.04 -0.21 -0.28 320

UK 2 Yr 0.41 -0.04 0.04 -0.12 -0.02 300 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 UK 10 Yr 1.41 -0.04 0.05 -0.12 -0.25

BD 2 Yr -0.52 -0.01 - -0.52 -0.13

BD 10 Yr 0.13 -0.04 0.03 0.13 -0.35

Irish 10 Yr 0.81 -0.03 0.03 -0.09 -0.16

Commodities FTSE 250 performance

% Current 1 day 5 day 1 Mth 1 Yr Brent (ICE $/bbl) 43.10 -1.69 2.77 11.25 -28.55 18,000 Gasoline (NYM $/Gal) 1.46 -2.95 -0.17 3.76 -24.21 17,500 Heat Oil (NYM $/Gal) 1.23 -1.76 2.65 4.63 -34.76 17,000 Nat.Gas 1.90 -3.45 -4.42 2.76 -27.13 Gold $/oz 1,227.10 -0.55 -1.00 -0.40 2.87 16,500 Silver $/ozt 16.17 0.25 6.66 5.55 -0.06 16,000

Copper U$/MT 4,813.50 -0.35 3.43 -2.16 -18.70 15,500

Wheat $/BU 4.60 - -0.11 -3.67 -5.98 15,000 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16

Source : FactSet

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