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Smurfit Kappa Strong start to FY21, upgrading Company Events forecasts/recommendation 30-Apr of Ireland; Q121 IMS ; Q121 Results Q121 IMS better than expected on Derwent ; Ex Final Div NII/NIM Kingspan; Q121 Trading Update ; Q121 Trading Update Permanent TSB Upscaling of digital investment by €50m 06-May AIB Group; Q121 Trading Update Air France-KLM; Q121 Results Irish CB paper on pandemic impact on credit – Derwent London; Q1 Update demand rather than supply ; Q1 update HeidelbergCement; Q121 Results ; Q121 Trading Update Irish Banks CB data shows non-banks <30% of SME financing Building Materials Saint-Gobain; RMI and Residential driving the beat in Q121 UK Economic View Another strong rise in UK house prices in April - Nationwide Economic Events Ireland UDG Healthcare Syneos Q1’21 Results and full-year 06-May Industrial Production Mar21 guidance, broadly in-line United Kingdom 30-Apr Nationwide House Price Apr21 04-May CIPS PMI Apr21 CIPS Services PMI Apr21 BoE Mortgage Approvals Mar21 M4 Money Supply 06-May CIPS Services PMI Apr21 BoE Official Bank Rate 07-May CIPS Construction PMI Apr21

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Smurfit Kappa Strong start to FY21, upgrading forecasts/recommendation

Smurfit Kappa has reported Q121 group EBITDA of €386m representing a 2% increase yoy Recommendation: Buy and comes in 7% ahead of consensus and 10% ahead our forecasts. The key driver of the Closing Price: €41.15 beat is EBITDA margins coming in 17%, an outstanding performance in the context of a €90m OCC headwind during the quarter. Encouragingly both the demand and the price David O'Brien +353-1-641 9230 backdrop are strong. This is reflected in an upbeat outlook with management indicating that david.a.o'[email protected] the performance in Q121 sets a foundation for accelerated revenue and earnings growth as 2021 progresses.

The key takeaways from the update are: (i) Volumes increased by 7% in both Europe and the Americas highlighting the continued growth in the market; (ii) This strength of demand across the sector is bringing logistical challenges as supply disruptions and paper shortages impact. Management notes that its integrated model is proving to be a differentiator which we believe is supporting share gains; (iii) Higher recovered fibre (OCC) costs represent a €90m headwind in Q121 with management noting that these costs are being progressively recovered through the box system. The margin performance during the period would point to an impressive pace of recovery heretofore; and, (iv) As part of the capital investment plan capital is being deployed towards a number of paper investments that will further strengthen the integrated model and improve the sustainability credentials.

On first glance we will upgrade FY21 EBITDA forecasts by 3% to €1.6bn and c.6% for FY22. Smurfit Kappa is clearly demonstrating its ability to outperform peers in any market conditions. Reflecting this quality coupled with the structural drivers at play we are upgrading our recommendation to BUY with a €50 price target.

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Bank of Ireland Q121 IMS better than expected on NII/NIM

BOI has published a better than expected trading update for Q1. NII/NIM looks ahead of our Recommendation: Buy expectations, business income is in line (but better on valuation items), with good progress Closing Price: €4.81 on costs, -7%. CET1 is +10bps in Q1 and net loans and deposits (ex FX) are stable. NPEs are flat in Q1 and whilst there is no real update on impairment guidance, BOI notes no notable Eamonn Hughes +353-1-641 9442 change in loan losses in Q1. [email protected]

The Q1 IMS is better than we anticipated, particularly on NII, so our first

impressions are that income estimates may lift c.2.5%, which drops down to c.6%+ at the pre-provision line. There’s no explicit guidance on impairments, but the tone seems a little better (we might lower our above consensus charge this year). Whilst the shares have traded strongly recently, the better NII outturn will continue to help it outperform today. We have published a more detailed separate note, so have a look at that for more details on the IMS.

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Permanent TSB Upscaling of digital investment by €50m

PTSB yesterday committed to a further €50m investment in technology infrastructure and Recommendation: Hold digital services, to add to the €100m already committed. It indicated that it has partnered Closing Price: €1.35 with EY and service integration partners Infosys and Finacle as part of its existing programme and will be launching the PTSB App in May including a current account offering. Eamonn Hughes +353-1-641 9442

[email protected] With all banks scaling up investment in IT/digital, no doubt accelerated by adoption levels arising during the pandemic, it is no surprise PTSB is making

further investments. This will partly impact the cost line, obviously, but a better customer experience will hopefully add on the revenue side too, positioning PTSB

better to leverage from the recently announced exits in the marketplace. This document is intended for the sole use of Goodbody Investment Banking and its affiliates

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Irish Banks CB paper on pandemic impact on credit – demand rather than supply

The Central Bank published an economic letter entitled ‘Credit Conditions for Irish Eamonn Hughes Households and SMEs’ and looked at the impact of the pandemic on the credit market and +353-1-641 9442 policy supports. The report notes that the contraction in lending volumes has been driven by [email protected] a drop in demand due to the contraction in economic activity, rather than a tightening in Barry Egan credit conditions. Survey data suggests firms’ aversion to take on credit include factors such +353-1-641 6059 as sufficient internal funds, low economic sentiment and scarring from the last crisis. [email protected] Nonetheless, demand for credit may increase quickly as the economy re-opens and fiscal supports are unwound. While a tightening of credit standards has been reported throughout

2020, this was at a slower rate than during the financial crisis. Unsurprisingly, the Letter

attributes borrower resilience and government supports as factors enabling the financial system to absorb rather than amplify the economic shock from the pandemic. As the reduction in lending in the pandemic was led by demand, it suggests that demand for credit may increase quickly as the economy re-opens and fiscal supports are unwound, but any tightening of standards in the recovery phase may only partially allow the system to meet demand, and firms without lender relationships may be particularly vulnerable.

Our forecasts see new lending already recovering in 2021, so obviously the pace of improvement is key. Overall, our new lending forecasts have underlying growth of c.13% this year, with data from Q1 already tracking well behind that level, though the comps start to get easier into Q2 and Q3 and will likely slow again in Q4 which was a strong quarter last year. Our forecasts have new mortgage lending up 19% this year and +10% next year, both outpacing SME activity. There is a lot of optimism around currently about a sharp acceleration in lending activity as the economy as re-opens, and whilst we are clearly encouraged about the more positive prospects for the macro, we are a bit more reticent on getting overly aggressive on new lending demand, particularly on the SME side. On the mortgage side, we can envisage that some of the large build-up in deposits (+€15bn) during the pandemic may find their way into the housing market. But in the SME sector, we would be a bit more hesitant. The low take-up of credit in the 80% government guarantee scheme (only 13% take-up on the €2bn) scheme is probably more a feature of the significant government supports that are available. However, whilst 32% of SMEs were debt free heading into GFC in 2008, some 58% of SMEs were debt-free heading into Covid-19, so many will continue to avoid credit, if then can, even when the recovery materialises. Memories will now be scarred by two black swan events, not just one. Also, our own Stage 3 estimates pitch one in seven SMEs

in financial distress, so hardly new targets for new incremental lending over the This document is intended for the sole use of Goodbody Investment Banking and its affiliates next 1-3 years. As such, we would be a bit more conservative on new lending potential in the SME sector. However, overall, the message that lower credit in 2020 was driven by demand rather than supply shows that banks continued to function even during the downturn and the current (high) CET1 ratios and (low) loan to deposit indicates they be well able to provide the necessary funding when the recovery kicks in.

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Irish Banks CB data shows non-banks <30% of SME financing

The latest version of the Behind the Data series from the Central Bank looks at ‘The role of Eamonn Hughes non-bank lenders in financing Irish SMEs’. The analysis shows that non-bank lenders play a +353-1-641 9442 key role in funding SMEs in Ireland, providing €1.6bn in new loan agreements to Irish SMEs [email protected] in 2020, down from €2.1bn in 2019. In comparison, the Central Bank data show that banks Barry Egan provided €4.1bn and €5.4bn in drawn-down new lending in 2020 and 2019 respectively. So +353-1-641 6059 broadly speaking, the non bank sector is around 28% of funding for SMEs. Overall, Irish [email protected] SMEs owed non-bank lenders €4.3bn at end-2020 compared to €19.8bn owed to banks.

The data shows that that non-bank lenders tend to specialise in specific sectors or product

lines (e.g. leasing), which means the importance of non-banks for each economic sector varies significantly. Lending to real estate SMEs had the largest share at €1.8bn between 2019 and 2020, so it accounted for almost 50% of the total lent by the non-bank sector. The CB data shows that non-bank share of lending in the real estate sector was >40% and c.30% in construction and Wholesale/Retail, but then tails-off in other sectors like manufacturing, agriculture and hospitality where it is <10%. The data is largely sourced from the Central Credit Register (has records on every loan >€500) and shows 63-non banks operating in the SME sector, though only 22 of them lent more than >€50m over the two year period. Around 43% of the funding emanated from asset managers, with 26% from a pure non-bank lenders perspective and 21% from non-financial corporations.

The Central Bank notes that non-banks are playing an increasing role in financing Irish businesses and are an alternative lender to the traditional banking system. It suggests that further work will be required to better establish the role of non- banks in credit conditions in the Irish market, in particular the resilience and sustainability of all the business models throughout the economic cycle. In our mind, that only means one thing – more regulatory oversight, both from a governance perspective and a prudential perspective, particularly now that the CB can see that nearly 30% of loans in the crucial SME sector emanate from non- banks. This will level the playing field somewhat with the traditional banks and will likely see some shake-out within the non- bank sector in due course. Our own estimates have pitched the importance of non-banks closer to 35% of total financing activity, but that included CRE investment and development, parts of which are likely to have bypassed inclusion within SME activity. All the same, with non-bank lenders accounting for ballpark 30% of lending activity, it should ease some of the competition fears from the recently announced loan acquisition

opportunities for the main banks on the exit of foreign owned banks. This document is intended for the sole use of Goodbody Investment Banking and its affiliates

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Building Materials Saint-Gobain; RMI and Residential driving the beat in Q121

Saint Gobain released its Q121 results after market hours yesterday. Its main markets David O’Brien "proved upbeat" at the start of 2021, especially "renovation in Europe" as well as +353-1-641 9230 construction in the Americas and in Asia-Pacific. Revenue was up 14.3% lfl from Q120 (8% david.a.o’[email protected] ahead of consensus) and when compared to Q119 is up 9% lfl. Robert Eason

+353-1-641 9271 In the commentary it is noted that the group benefited from: [email protected]

• Strong group volume growth - up 11.7% over the quarter and 5.9% when compared Shane Carberry +353-1-6419118 to Q119, continuing the trends seen in Q420 (volumes up c.5%). [email protected] • Price increases of 2.6% amid increased energy and input cost inflation.

Dudley Shanley In the outlook, the group expects: (i) market growth in the Americas, particularly in +353-1-641 9174 residential (North America and Latin America); (ii) Continued outperformance in construction [email protected] and support from gov stimulus in Northern Europe; (iii) Strong residential renovation markets and support from European stimulus driving the Southern Europe – Middle East & Africa region; and (iv) for FY21, targeting a “significant like-for-like increase in operating income".

This is yet another company flagging the strong start to the year driven by RMI in Europe and residential construction in the Americas.

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UK Economic View Another strong rise in UK house prices in April - Nationwide

All appears to be rosy in the garden of the UK housing market, as Nationwide’s House Price Shaun McDonnell Index accelerates to 7.1% annual house price growth in April. While the extension of the +353-1-641 9127 [email protected] stamp duty cut played some role, underlying strength in demand appears to be the main driver of the trend.

Nationwide's House Price Index rallied back in April, growing 2.1% month on month to bring the average house price to a new record high of £238,831. The acceleration leaves annual HPI at 7.1% in April (5.7% in April). While it is expected that the extension of the stamp duty cut is playing a role, it is not cited as the main reason for the continuously strong buyer backdrop. In fact, 75% of house purchasers surveyed said they'd have been buying now irrespective of the stamp duty holiday being extended. Similar to the dialogue of other releases, it is expected that the buoyancy has further to run with supportive conditions such as the stamp duty extension, labour market supports, record level bank deposits, and a shift toward the “search for space” among consumers playing into the hands of UK housing.

Relative to expectations at the start of the pandemic, the trend in house prices over the past year has been remarkable and shows no signs of abating. Our SiteWorks analysis shows a lower increase in new homes prices, suggesting the second-hand market is seeing the most acute supply shortages. Indeed, annual price growth may rise further in the coming months due to weak comparatives. There are risks of a more subdued performance later in the year as labour market supports unwind and unemployment most likely begins an upward trajectory. For the time, being the upward march continues.

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UDG Healthcare Syneos Q1’21 Results and full-year guidance, broadly in-line

UDG peer, Syneos, issued results for the three months to March ahead of the market Recommendation: Buy opening in NY yesterday in which it struck a similar tone to that of IQVIA last week in terms Closing Price: £8.49 of the performance of its commercial business, which we view as a proxy for Ashfield Engage (formerly Commercial & Clinical). Gerry Hennigan +353-1-641 9274

[email protected] For the Group as a whole, Q1 revenue of $1,208.7m was up 3.9% YoY and 6.0% QoQ. Within that, Clinical Solutions revenue increased 6.3% YoY to $938.0m (5.2% in terms of

constant currency), while Commercial Solutions revenue decreased 3.6% YoY to $270.8m (- 4.2% in terms of constant currency). Guidance for the year to December has been outlined at sales in the range of $5125m - $5,325m and adj. EPS between $4.17 and $4.42. Consensus estimates for Syneos were for Q1 sales of $1.19bn, with full year revenue in the $5.19bn - $5.24bn range.

As a reference point, IQVIA’s commercial business (Contract Sales & Medical Solutions) recorded revenue of $193m in Q1, lower by 1.5% on a reported basis, and by 4.1% at constant currency. Syneos stock was off 4% post the announcement over the day.

Our view on UDG, as outlined in our report on January 29th, remains that while “we believe there are localised structural issues… which while acting as a ‘drag’ on Group performance ……that they will be more than compensated by packaging demand.” UDG is scheduled to release results for the six months to March on May 18th.

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We would like to inform you that Eamonn Hughes holds shares in AIB Group We would like to inform you that Dudley Shanley holds shares in CRH We would like to inform you that Robert Eason and Dudley Shanley hold shares in Kingspan

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