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Kingspan FY20 – Ahead of expectations Company Events 19-Feb IRES REIT; FY20 Results IRES REIT FY20 Results – NAV growth returns in a Kingspan; FY20 Results buoyant market NatWest Group; FY20 Results SEGRO; FY20 Results SEGRO FY20 Results – 9% NAV outperformance as values 23-Feb HeidelbergCement; FY20 Results climb HSBC; FY20 Results 24-Feb Glanbia; FY20 Results Irish AIB agrees sale of deep arrears loan portfolio Lloyds Banking Group; FY20 Results – small CET1 boost Wienerberger; FY20 Results William Hill; Q420 Results Irish Banks Natwest announces phased withdrawal from 25-Feb Domino's Pizza Group; FY20 Results Grafton Group; FY20 Results Ireland – AIB and PTSB looking at assets Howden Joinery; Trading update Standard Chartered; FY20 Results Irish Economic View Recovery delayed as heavy Vistry Group; FY20 Results restrictions set to linger into May 26-Feb FBD Holdings; FY20 Results Glenveagh Properties; FY20 Results UK Economic View Quick vaccine rollout instils optimism LafargeHolcim; FY20 Results amongst UK consumers Economic Events UDG Healthcare In-line Syneos statement failed to inspire Ireland

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Kingspan FY20 – Ahead of expectations

Kingspan reported a strong set of FY20 results. Group trading profit has come in at €508m Recommendation: Buy (+1% yoy) versus our forecast of €502m. However, excluding the repayment of government Closing Price: €57.40 COVID supports trading profit came in at €525m (+5.6% yoy) compared to guidance for marginal yoy growth. Relative to forecasts the beat has been driven by stronger than David O'Brien +353-1-641 9230 expected activity into year end. The global orderbook for panels is up 19% yoy and david.a.o'[email protected] management notes that 2021 has started well while noting the challenge of recovering raw material price inflation. The encouraging outlook along with further M&A activity and the

wide-ranging actions following the Grenfell Inquiry will be well received in our view. At first glance, we will be nudging our FY21 forecasts up slightly.

The key takeaways from the statement are: (i) the global Panel orderbook has increased from +10% in November to +19% at year end. The improvement has been driven by strong order intake in the Americas and mainland Europe with orderbooks comfortably ahead in the UK yoy; (ii) In response to a number of issues that have arisen from the Grenfell Inquiry, the company has made changes to processes, governance and management while adopting a new code of conduct. In addition, it has given reassurances on any legacy testing issues and is providing support on legacy projects; (iii) Cash generation has been exceptionally strong with net debt finishing the year at €236m compared to our forecast of €298m driven by strong working capital management; (iv) While small in the overall scope of the company, it is encouraging to see further development activity with the acquisition of SkyDome (Daylighting), Bromyros (Panels Uruguay) and Dyplast (Technical insulation in the US) since the start of December. This expansion will be complimented by a number of capex development projects.

The stock offers material long term value at current levels. We continue to view Kingspan as very well placed to serve the clear necessity for energy efficient building solutions over the long term.

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IRES REIT FY20 Results – NAV growth returns in a buoyant market

In our preview note last week we highlighted a view that IRES was likely to return to capital Recommendation: Buy value growth in H2-20 as valuer optimism returned. We expected a modest 1% capital Closing Price: €1.52 growth, which would deliver NAV growth of 1.5% to 152.2c. This expectation was considerably outperformed with capital values rising ~4%, driving NAV up (to 159.9c) 7% Colm Lauder +353-1-641 6042 since June (149.9c) and 3% since FY19 (154.6c). This means IRES is back trading at a [email protected] discount of -5% to NAV (0.95x) in a sector where we consider 10% a fair premium to be (1.1x). This reinforces our strong “Buy” call and Price target of 175c. We expect forward NAV

upgrades of ~5%.

Net Rent was bang in line with our expectations for the FY, delivering +18% y/y as new additions and rent reviews drove growth. The €46.3m positive swing in revaluations was a sizable outperformance of our expected H2 swing of €15m (along with a €4.4m gain above book value disposals) and drove Basic EPS to over double our expected 4.4c with 11.2c. However, on a net rental basis, earnings (EPRA basis) were marginally below our 6.8c forecast at 6.5c. This was due to higher expenses. Nonetheless, IRES made a significant upgrade to its dividend progression plans with a further 3.22c announced following 3.5c paid for H1. This results in a total dividend for the year of 6.7c (6.0c forecast) and sees an implied yield of 4.4%. Considering the solid income performance (98.9% rent collection), IRES is an increasingly appealing secure income play.

IRES note that “demand has remained strong” with occupancy at 98.4% while ”supply constraints and resilient demand,…,underpin performance”. Strong transactional evidence supports this, and this was evident in the 20bps net initial yield compression to 4.2% (the dominant value driver). Along with strong occupancy, turnover at ~18% gave the opportunity to capture reversions as average rents rose 1.8% to €1,624pcm. There was no update on the IMA apart from noting IRES is “exploring the option to internalise management”.

We were bullish on IRES ahead of results given the buoyant Irish PRS market and strong pricing evidence (notwithstanding rental affordability issues), and NAV performance has come in well ahead of expectations. We will be upgrading post- results and reiterate our “Buy” call at PT of 175c.

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SEGRO FY20 Results – 9% NAV outperformance as values climb

SGRO delivered another strong year of growth in its FY20 results published this morning, Recommendation: Hold beating expectations (both ours and consensus) as UK (and to a lesser extent Continental Closing Price: £9.63 Europe) asset valuations pushed forward (+9.2%, double the market gains of +4.6%) to new highs. Meanwhile, the early COVID challenges to (impacting March/June) rent collection Colm Lauder +353-1-641 6042 has largely abated with net rent (and thus earnings and dividends) back in-line with pre- [email protected] lockdown performance. The standout item was, unsurprisingly, NAV, as growth of 16% to 814p (up 10% on H2 alone) will lead us to re-assess our valuation upwards. SGRO now

trades at a 1.2% premium (1.2x) aligning with sector averages.

The operational performance has remained particularly strong with £78m of new rents secured growing the rent roll to £508m. 53% (or £41m) of these were pre-lets further highlighting the depth of occupier demand in the market and de-risking SGRO’s development pipeline. Almost 840m sq.ft of developments were completed in 2020, with the potential to add £47m of rent (£39m of which is secured).

The earnings security delivered by improvements in rent collection over the year (including collecting arrears) saw net rental income rise by 6% y/y to £327m, slightly ahead of our forecasted £322m. Combined with bumper re-valuation gains of £989m (GBYf: £170m) drove Basic EPS to 124p, well ahead of our 47.9p forecast. Net rental profit (EPRA basis) was 25.3p, closer but again ahead of our 22.7p as strong underlying income growth boosted performance. The earnings growth led to a further progression in the dividend, with 22.1p final declared, ahead of our 21.4p expectation. This implies a dividend yield of 2.3%.

This morning’s results have delivered a significant outperformance of both our forecasts and consensus from a NAV perspective. We are likely to lift our FY21 NAV forecasts by approximately 9%, which will result in a corresponding increase in our valuation.

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Irish Banks AIB agrees sale of deep arrears loan portfolio – small CET1 boost

AIB has announced that it has agreed to sell a NPE portfolio (in long term default, average Eamonn Hughes time since first default of 10 years) to Mars Finance Ireland, part of a consortium with Mars +353-1-641 9442 and affiliates of Apollo. AIB is to receive a cash consideration of €0.4bn for the portfolio [email protected] which had a gross NPE value of €0.6bn last September and associated RWAs of €0.4bn. Barry Egan

+353-1-641 6059 There was much speculation about the likely closing of this transaction in recent [email protected] weeks, so it is reassuring it has been agreed. AIB notes the sale is expected to be capital accretive due to the reduction in RWAs, which suggests to us it has a

minimal P&L impact. We estimate the sale adds c.12bps to CET1, which together

with the prior small NPE sale a fortnight ago, plus whatever associated calendar provisioning has been avoided, probably brings the total benefit closer to c.15- 20bps. It’s an incremental positive, but also points to the adequacy of AIB’s provisioning and shows interest still in deep arrear assets, including PDH mortgages.

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Irish Banks Natwest announces phased withdrawal from Ireland – AIB and PTSB looking at assets

In line with (extensive) recent speculation, Natwest has announced this morning it has Eamonn Hughes concluded its strategic review and given it will not be in a position to deliver a sustainable +353-1-641 9442 return over its planning horizon it will begin a phased withdrawal “in an orderly and managed [email protected] manner”. It confirms it has signed a non-binding MOU with AIB for the sale of a c.€4bn Barry Egan portfolio of performing commercial loans and the transfer of the staff involved in the day to +353-1-641 6059 day management of this loan book. The MOU is also confirmed by AIB in an RNS this [email protected] morning and that the potential transaction requires due diligence and the necessary approvals etc. Natwest also confirmed it is in early discussions with PTSB among other

strategic banking counterparties about their potential interest in buying certain retail and

SME assets, liabilities and operations. An RNS from PTSB confirms these discussions. Natwest anticipates its withdrawal will be capital accretive over a multi-year process. Recent press speculation had indicated that other players, like Cerberus and Lone Star are also known to be evaluating parts of the loan book.

For context, Ulster Bank has a c.15% mortgage market share, a near-20% SME share and punching above its weight in Corporate Banking. It has €21bn gross loans (with €0.8bn of provisions) and €21.6bn of deposits. Based on Ulster Bank’s 2019 Pillar 3 document, the SME book was €1.65bn (56% RWA density), with €1.3bn of specialized lending (asset finance?, with 70% RWA density) and €3.4bn of Other Corporate (with 66% RWA density). The €14.6bn mortgage book which equates to a c.15% market share had a 42% RWA density. On the liability side, based on last year’s Pillar 3, the €21.6bn of deposits were split 45% personal, 40% commercial and 15% financial institutions.

In relation to the incumbents, our estimate of AIB’s 14.8% CET1 ratio at end FY20 provides it with a lot of firepower on any potential transactions. Simplistically, even taking a stab at c.€4bn book at a 67% RWA density would cost c.70bps of CET1, but overall impact will depend on price. That’s very manageable (bearing in mind recent disposals, including the deep arrears NPE disposal announced today, also netted c.+15-20bps). But more importantly, it would make AIB the clear market leader in corporate and SME lending in Ireland. As well as NII, corporate banking also provides a good flow of ancillary fee income as well, which is helpful for ROEs. New business banking rates in Ireland are 3.7% and rates on corporate banking are likely to be lower, but this still implies potential material profit accretion for AIB. For PTSB, it is unclear the level of assets that it is taking, so is a little bit more difficult to estimate the implications. Earlier in the week, we

estimated the SME book alone has the potential to increase PTSB’s FY23 ROE from This document is intended for the sole use of Goodbody Investment Banking and its affiliates c.4% to c.6%, so would be meaningful and worthy of consideration. That book might be smaller if it is more focused on the S part of SME, but it looks to be interested in mortgage assets as well. The decision by Natwest is obviously a significant shake-up for the Irish banking landscape. As we noted earlier in the week, the phased exit of Ulster will leave a more concentrated market and whilst there might be some headwinds in terms of managing excess liquidity, the incumbents should benefit from increased scale both in the short term through potential transactions and also through a higher share of the flow of new lending going forward.

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Irish Economic View Recovery delayed as heavy restrictions set to linger into May

Public health officials last night recommended that the government take a very cautious Dermot O’Leary approach to reopening over the coming months. The suggestions are that this will mean that +353-1-641 9167 [email protected] a partial reopening of schools from the start of March will be the only easing to be permitted in the short-term, with a more substantial easing delayed until the end of April or possibly into May. While it was anticipated that construction would be allowed to open from early March, this timeline is now under threat based upon the ultra-cautious approach that the government is taking.

Ireland has taken a more cautious approach to restrictions than most other countries since the start of the pandemic, while the latest batch of decisions is likely to be influenced by both the higher transmissibility of the new strains and the spike in cases that followed the reopening around Christmas.

In our Q1 Irish Economy Health Check, we based our forecasts off an April reopening. The rebound looks like it will now be delayed by a few weeks at least but will be compensated somewhat by an extension of government supports. The light at the end of the tunnel is the prospect of a ramping up of vaccinations from April onwards.

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UK Economic View Quick vaccine rollout instils optimism amongst UK consumers

UK consumer confidence rose to its highest point since March this month, according to the Shaun McDonnell GfK research institute’s index. The consumer confidence index jumped five points to -23 in +353-1-641 9127 [email protected] February and the sub-index for the economic outlook over the coming year rose 14 points to -30. The UK’s fast vaccine rollout appears to have buoyed confidence. Add to this the early evidence that suggests vaccines are reducing infections by two-thirds in the UK - Public Health England are due to publish their research by month-end - and there is great cause for consumers to hold optimism heading into Q22021.

The personal finance index rose by two points to +4, just two points below its February 2020

levels. Government supports have played a big role in maintaining household incomes This document is intended for the sole use of Goodbody Investment Banking and its affiliates through the crisis and the news that furlough supports will continue will be welcomed in the context of the labour market being the biggest uncertainty. The GFk’s major purchase index, a measure of individual’s propensity to spend on expensive luxury goods (e.g. homes, holidays, cars, etc.) rose five points to -19.

All in all, there is evidence that the speed in which a government rolls out the vaccines has immediate effects on feelings of optimism amongst an economy’s consumers. Whilst risks to unemployment remain, this morning’s data provides us with comfort that the UK economy will bounce-back significantly in H22021. Finally, there are lessons to be learned from the UK’s approach for governments globally, but this is particularly the case for Ireland (see this morning’s Irish Economic View).

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UDG Healthcare In-line Syneos statement failed to inspire

Post the release of quarterly results from IQVIA last week, it was the turn of UDG peer Recommendation: Buy Syneos Health yesterday to provide a sense of the underlying strength of the CRO (Contract Closing Price: £7.98 Research Organization) and CCO (Contract Commercial Organization) markets. Gerry Hennigan +353-1-641 9274 At a Group level, revenue for the three months ended December amounted to $1,140m [email protected] (consensus of $1.11bn), resulting in adj. eps of $1.11 vs market consensus of $1.10. At a divisional level, revenue from Clinical Solutions decreased 5.9% on a constant currency (cc)

basis compared to the same period in the prior year, while cc revenue from Commercial Solutions declined 9.9% YoY. Commentary on the latter, which we view as a proxy for Ashfield Engage (formerly Commercial & Clinical), indicates that the decrease was primarily due to the impact of elevated cancellations in H1, COVID-19, and delays in new project starts. Revenue guidance for the year to December was outlined at $5.125bn - $5.325bn vs reported FY20 sales of $4.416bn, and adjusted earnings in the range of $4.09 - $4.38 compared to the $3.41 recorded for the year to December last. Market reaction to the Statement from Syneos was reflected in a 5% fall in the share price on the day.

Commentary from Syneos yesterday broadly mirrored the sentiment around commercial sales rep activity outlaid by IQVIA last week (YoY decline of 11.9% for Q4’20). As outlined in our report on January 29th, however, while we anticipate localised structural issues associated with sales reps activity and Europe to persist in the near term, any headwinds for UDG there will be more than compensated, in our view, by packaging (Sharp) demand.

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