17.07.15 Currency news: Sterling buoyant as BoE hawkish tone persists Today’s Treasury Events Currency thought of the day: Sterling sellers; protect 0.7150 13.30 US CPI Economics: NAMA Q1 results 15.00 US Michigan survey Equities: REITS – office vacancy rate now into single digit territory Equities: DCC – Q1 IMS points to trading in line Upcoming Equity Events Equities: Kerry – Givaudan reports EBITDA of CHF566m in H115 17.07 DCC – Q1 IMS Equities: ptsb announces discounts to mortgage rates for new variable rate customers 22.07 EasyJet – Q3 IMS Equities: Central Bank finds that 21% of mortgagees could save from switching lenders 29.07 SKG – Q2 Results

Rates and Commodites Last 1m chg % FX rates Last Indices Last 1m chg %

ECB rate 0.05 0.00 EUR/USD 1.0892 ISEQ 6,491 5.54 UK Base rate 0.50 0.00 EUR/GBP 0.6952 EUROSTOXX 3,671 7.08 US Fed Funds 0.25 0.00 EUR/AUD 1.4703 FSTE 100 6,789 1.62 LIBOR GBP 3M 0.58 2.24 EUR/CAD 1.4116 S&P 500 2,124 1.14 LIBOR USD 3M 0.29 1.85 EUR/CHF 1.0418 Top 5 Irish Equities Last 1m chg %

EURIBOR 3M -0.02 -35.71 EUR/JPY 135.0200 CRH PLC 27.07 5.52 Gold ($) 1144.95 -3.43 EUR/NZD 1.6666 Ryanair Holdings PLC 12.68 11.09 Brent oil ($) 57.13 -10.55 EUR/ZAR 13.4825 Kerry Group PLC 69.42 5.29 Natural Gas ($) 2.88 -0.07 GBP/USD 1.5667 0.37 5.76 Copper ($) 250.95 -3.80 GBP/EUR 1.4384 Smurfit Kappa Group 28.04 5.06

Daily Deposit Rates

EUR 1 Month Notice 1 Month 3 Months 6 Months 12 Months 0.10% 0.01% 0.05% 0.15% 0.40%

GBP 1 Month Notice 1 Month 3 Months 6 Months 12 Months 0.8% 0.40% 0.60% 0.70% 1.00%

USD 1 Month Notice 1 Month 3 Months 6 Months 12 Months 0.25% 0.10% 0.20% 0.40% 0.60%

Currency Q2'15 Q3'15 Q4'15 Q1'16 Support Resistance

EUR/USD 1.1000 1.0800 1.0600 1.0600 1.0855 1.0940 0.7100 0.7000 0.6900 0.6750 0.6940 0.7030 EUR/GBP Contact Details: Economics +353 1 421 0496 Currency +353 1 421 0091 Equities +353 1 421 0463 www..ie [email protected] To view the full range of Investec Research & Insights, go to www.investec.ie/research

Friday, 17 July 2015

Currency news: Sterling buoyant as BoE hawkish tone persist

UK rates could rise at “the turn of the year”: The Bank of England Governor signalled that the time to raise rates may not be that far away in a speech in Lincoln last night when, in discussing monetary policy he stated that the ‘process of adjustment will likely come into sharper relief around the turn of this year’. This follows comments from fellow MPC member David Miles earlier this week who hinted that it may be right to start raising rates soon. We have not altered our baseline view that rates will start to rise in Q1 next year, but the risks to a late-2015 move have been rising recently. Indeed the pound has gained upward momentum on the rate outlook and on a trade weighted index sterling rose to a near 7½ year high yesterday.

All about Greece at Draghi’s press conference: Unsurprisingly the ECB press conference yesterday was primarily focused on Greece. As it got underway the Eurogroup released a statement to say it had granted, in principle, a 3-year ESM bailout programme. News of this agreement, which had likely reached the Governing Council earlier in the day, alongside the Greek parliament’s ratification of its reform proposal on Wednesday, was enough to see ECB President Mario Draghi confirm that the Governing Council had voted (by at least a 2/3 majority) to raise the Emergency Liquidity Assistance (ELA) limit for the Greek banking system, albeit by a relatively marginal €900m (to €89.9bn), which apparently was all the Greek central bank had requested. Despite the modest size of the increase, the ELA uplift will go some way in showing the ECB’s willing to be supportive of Greece, helping to build ‘good faith’ in response to the Greek parliament’s backing of the reform plan. Mr Draghi was not able to provide any further information on when the Greek banks might reopen or capital controls be lifted; these were matters for the Greek government. Broadly the ECB President was keen to stress that the central bank was fulfilling its mandate and went on the defensive when asked if the ECB had let the Greek people down.

ECB shows support for Greece by fulfilling its mandate: Our reading of yesterday’s commentary on Greece from the ECB President is that he is not willing to see the ECB take responsibility for the breakdown of the single currency and indeed will fight hard to maintain it. Firstly, the ECB is very keen to stick to its mandate and to the line of the law in determining its policy stance. However, whereas previously we have viewed the ECB as the institution that could press the eject button on Greece maintaining Euro membership, the ECB appears increasingly willing and able to exhaust legal ways around problems, not wanting to be the institution that pulls the plug; it favours passing that baton back to the politicians.

Currency thought of the day: Sterling Sellers, Protect 0.7150, benefit from favourable moves down to 0.6595

Main Points • Protected at all times at 0.7150 for the end of August, September, October 2015 • Can participate in movements down to the limit rate 0.6595 each month • If the market rate is at or below the Limit rate during the month in question, the company is obliged to deal at the protection rate 0.7150

Wish to know more, please call the treasury team

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Friday, 17 July 2015

Equities: Green REIT / Hibernia REIT – Dublin office vacancy rate now into single digit territory

The latest report into the Dublin office market from JLL reveals that the headline vacancy rate fell by 150bps q/q to 8.7% in Q2 2015. This outturn was chiefly down to c. 955,000 sq ft of take-up in the quarter, which brought H1 2015 take up to 1.3m sq ft, 24% above the total for the same period last year.

The vacancy rate has fallen sharply from the 19.9% it stood at in Q1 2012 as FDI wins, expansion by indigenous firms and an absence of any new build activity between 2011 and 2013 all combined to reduce the previous glut of office space in the city. Last year saw the cranes begin to return to Dublin’s skyline, with c. 200,000 sq ft of construction projects commencing. This has increased to c. 1.7m sq ft currently, enough to increase the current headline stock of vacant accommodation by 50% (although some of the existing space is likely to be flattened in order to make way for new projects).

JLL reports that prime quoting rents in the city centre now range from €50-60 per sq ft, up from €47.50-55 in Q1.

The above comes as no surprise, as the Dublin office market has been in recovery mode for some time now. Nonetheless, they serve as a reminder of the bull case around GRN and HBRN, who have assembled portfolios of attractively located and well invested Grade A office accommodation and development sites across Dublin.

Philip O’Sullivan │Chief Economist │ +353 1 421 0496│ [email protected]

Equities: DCC – Q1 IMS points to trading in line

DCC has issued an IMS for Q1 ending June 2015, which overall points to trading in line with budget. Management has reiterated its FY guidance for “very significant growth”.

On a divisional basis Energy (62% of EBITA) traded ahead of budget thanks to a strong performance from its LPG activities (35% of divisional EBITA) while the recently acquired business from Esso in France has traded in line with management expectations. Trading in Technology (19% of EBITA), on the other hand, is reported to be behind budget as the UK operations continue to be impacted by a weak tablet market and reduced mobile phone sales to one supplier. Trading for Healthcare and Environmental, two smaller divisions, grew in line with expectations

For the outlook, management has reiterated its FY guidance that operating profit and EPS will be very significantly ahead of last year. We are currently forecasting EBITA to grow by 27% and EPS to grow by 15%, in line with consensus. The lower level of EPS growth can be explained by an expected return to a normalised tax rate of 14.0% vs 9.5% last year. While no new acquisitions were announced, management says that it remains ambitious to develop the business and its strong balance sheet leads it well placed to do so. On our forecasts DCC’s average net debt/EBITDA for FY16E stands at 1.4x, leaving it well placed to spend circa £200m on acquisitions per annum, although the immediate focus may switch to the integration of the Esso and Butagaz businesses in France.

In terms of valuation, DCC trades on a FY16E PE of 21.8x and FY17E PE of 19.7x vs. the average for its high quality distributor peers’ of 19.3x and 17.7x respectively.

Gerard Moore │Research Analyst │ +353 1 421 0463│ [email protected]

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Friday, 17 July 2015

Equities: Kerry – Givaudan reports EBITDA of CHF566m in H115

Givaudan, one of Kerry’s main peers in the Ingredients & Flavours sector, this morning issued H115A numbers and re- iterated its full year guidance. The company reported EBITDA of CHF566m from revenue of CHF2.18bn, in line with consensus. Overall, the business reported LFL revenue growth of 1.3%. Of direct relevance to Kerry, the Flavour division reported a 3.9% increase in EBITDA to CHF322m from a flat out turn at the revenue line at CHF1.16bn (+2.6% on a LFL basis). Management noted that it experienced good growth in mature markets, Asia Pacific and Latin America (business wins and existing business growth), which offset difficult conditions in Eastern Europe, Africa and the Middle East. Europe, Africa and Middle East sales were up 0.2% LFL, North America +6.1%, Latin America +6.9% and Asia Pacific +1.5%. Kerry reports its H115E results on the 6th of August.

Ian Hunter │Research Analyst │ +353 1 421 0466│ [email protected]

Equities: Banks – permanent tsb announces discounts to mortgage rates for new variable rate customers permanent tsb yesterday stated that it is launching a 0.50% discount for 12 months for new variable rate customers. This means that new customers will now pay a range of 3.2-3.5% for the first 12 months when they take out a new variable rate mortgage. The lower rate of 3.2% will be paid by customers with a LTV of 50% or less while the higher 3.5% rate will be paid by those customers with a LTV of 70-80%. The ’s new macroprudential regulations stipulate that no more than 15% of new mortgage lending can be executed at LTVs of greater than 80% (save for certain exceptions in the case of first time buyers) and ptsb has elected not to disclose what rate a customer with a LTV of more than 80% will pay – though we suspect it will be greater than 3.5%.

This move by permanent tsb does not come as a surprise to us. We initiated coverage of the bank on 15th June (please contact us if you wish to receive a copy of this report) and noted, at that time, that we expected to see permanent tsb move to reduce its front book mortgage lending rates without undue delay in order to become more competitive, and thereby arrest the recent decline in market share of new lending that the bank suffered in Q4 2014 and Q1 2015. While the move is negative from a net interest margin perspective at first glance it should help to reverse the recent decline in share. The key question is whether it will be seen as sufficiently attractive by potential customers given that it is just a 12- month discount – we expect that permanent tsb will monitor the customer response very carefully and will potentially make the move ‘permanent’ should it not have the desired impact.

John Cronin │Research Analyst │ +353 1 421 0494│ [email protected]

Equities: Banks – Central Bank of Ireland finds that 21% of mortgagees could save from switching between lenders

The Central Bank of Ireland yesterday published its Economic Letter for July 2015. The publication focuses on the savings that can be made by mortgageholders from switching between lenders and finds that 21% of borrowers can make savings by doing so (following a study of more than half a million mortgages). It also notes that a further 33% of mortgageholders could make savings by switching but are not in a position to switch (mortgage loan is non-performing, LTV is greater than 90%). The Central Bank also finds that 46% of mortgageholders would not make any benefits from switching due, predominantly, to the preponderance of low cost tracker mortgages.

We believe that the percentage of borrowers who could save by switching is significantly higher than the Central Bank has presented. This is because the paper does not consider the potential savings that can be made by switching mortgage product without switching lender. For example, we know that customers in negative equity (i.e., with LTVs of greater than 90%) can benefit from switching mortgage product without switching lender. Finally, it is worth noting that the Central Bank notes that “There is little evidence that those who could benefit financially from switching are actively seeking to switch” (the number of incoming switchers per month at the top five lending institutions averaged just 38 out of an approximate 684,000 mortgages) – the Central Bank cites potential to make savings without changing lender, possible switching costs, as well as findings from behavioural economics research as possible explanations for the low levels of switching observed in the marketplace.

John Cronin │Research Analyst │ +353 1 421 0494│ [email protected]

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Friday, 17 July 2015

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