Morning Wrap

Today ’s Newsflow Equity Research 22 Feb 2016 Upcoming Events Select headline to navigate to article

Kingspan Upgrades follow another strong set of numbers Company Events FY15 First Glance – Better at pretax level 22-Feb Associated British Foods; Q2 2016 Results Bank of Ireland; Q4 2016 Results and capital, committing to a divvy the positive Bovis Homes Group ; Q4 2015 Results Green REIT; Q2 2016 Results Green REIT NAV 141c +7% since June and in line with Kingspan; FY15 Preliminary results expectations 23-Feb ; Q4 2015 Results 24-Feb ; Q4 2015 Results Hibernia REIT Acquisition for €51m in South Docks Area 25-Feb Howden Joinery; 2015 Preliminary Results in Mondi; Q4 2015 Results Playtech; FY 2015 results Appeals planning permission for new service 26-Feb ; Q4 2015 Results area in Clare IAG; Q4 2016 Results William Hill; Q4 2015 Results ABF sees lower demand for farm 29-Feb FBD Holdings; Q4 2015 Results inputs Economic View Uncertain election outcome looking ever more likely Economic Events UK Economic View Let the Brexit campaign begin Ireland UK Builders Merchants Bovis Homes point to further growth in 2016 United Kingdom

United States 22-Feb Markit US manufacturing PMI

Europe 22-Feb Eurozone Manufacturing PMI Eurozone Composite PMI Eurozone Services PMI

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Kingspan Upgrades follow another strong set of numbers

Kingspan has reported trading profits of €256m for the 12 months to the end of Dec-15 Recommendation: Buy versus guidance given in November of “approximately €250m”. The outturn was 2% ahead Closing Price: €23.34 of our forecasts, driven by the insulation businesses, and represented underlying growth of Robert Eason c.20%. Adjusted EPS was 3% above our estimates at 110c, reflecting slightly lower than +353-1-641 9271 expected financial / tax charges. The dividend is also ahead of our forecasts at 25c for the [email protected] full year (up over 50% yoy).

From an operational perspective the key takeaways from the results are: (i) Slightly stronger underlying top-line growth in H2 of 3.5% versus 2.6% in H1. This was particularly driven by the Insulation Panel business with lfl sales growth of 2% in H1 and 5% in H2; (ii) Operating leverage remained high (c.50% for the FY), reflecting a strong underlying drop-through and also a favourable input cost backdrop which could be expected to continue to an extent in H116; (iii) As a result margins were up +137bps (split 126bps H1 and 146bps H2) to 9.2%. This resulted in underlying profit growth of 20% for the FY (stronger in H2 at +28% versus 11% in H1); and (iv) A significant contribution from a record period of acquisitions (trading profits of €52m, representing a margin of 8%).

Net debt at the end of the period was €328m, significantly ahead of management guidance (“in the region of €380m”) and our forecasts. A key driver was working capital, reflecting some one-off timing issues. This leaves net debt at 1x EBITDA and with unused facilities / cash of €627m there is plenty of financial firepower to continue developing the business. Indeed, management highlights a significant number of capex projects which are underway across the group.

In the outlook it is no surprise to see management recognising the recent turmoil in financial markets and the adverse movements in currencies. It is therefore encouraging that the group is having a “strong start” (helped by weather) to the year and order books are “healthy”. As a result, we are upgrading FY16/FY17 trading profit forecasts by 2/3% (6% at an eps level). This continues the upgrade cycle for Kingspan (note: our FY16 trading profit forecast 12 months ago was €198m, it is now €277m, +40%) and it is such momentum that underpins our positive stance on the stock. Home…

Bank of Ireland FY15 First Glance – Better at pretax level and capital, committing to a divvy the positive

BOI has reported FY15 operating profit of €1,201m, versus our €1,140m estimate, c.5% Recommendation: Buy ahead, though trailed at the post tax level (€947m vs €980m and consensus of €972.6m). Closing Price: €0.25 Income was 1% better than expected, with non-interest income 2% better, while costs were Eamonn Hughes in line. Elsewhere, the impairment charge of c.€296m, was lower than our €321m forecast. +353-1-641 9442 Net loans of €84.7bn compared with c.€84bn at end Q3 (€85bn H1, €82.1bn FY14). Capital [email protected] ratios were a little bit better than anticipated, with a fully loaded core tier 1 ratio of 11.3% vs 10.6% in September and our estimate of 11.0% (BOI divulged it’s SREP as 10.25%). The pension deficit was c.€40m lower than in June and there is no update on movements year to date. However, BOI has provided an updated dividend policy, which should be the key positive for the stock today. BOI intends to re-commence dividends in financial year 2016, paid in H117, starting at modest levels, moving in time to c.50% of sustainable profits.

This commitment is likely to be welcomed by the market and outweigh the lower NIM guidance (partly on bond disposals). See First Glance note for more details.

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Green REIT NAV 141c +7% since June and in line with expectations

Green REIT released H116 results this morning (for the 6 months to December 31). EPRA Recommendation: Buy NAV per share was in line with expectations at 141c, up 7% from the 132c reported in June Closing Price: €1.35 and +17% yoy. The total portfolio value was €961.5m (€899.3m at end of June 2015. Colm Foley

+353-1-641 6042 Green REIT has reported a pre-tax profit of €67.1m. Net rental income was €22.9m (€22.7m [email protected] anticipated), with revaluations of €54.6m including the revaluation of Joint Venture at Central Park, c. €8.5m ahead of forecast. The main drivers of the valuation uplift in H116 were the Dublin office (76%) and retail assets (22%), whilst Central Park +€11.3m accounted for 21% of the total revaluation.

The passing rent at the end of December was €51.4m (contracted rent of €55.3m). The portfolio has moved from being 1% over-rented in June to 3% under rented today. Following strong moves in market rents, its CBD office assets are now 11% under rented and its Greater Dublin office assets are 6% under rented. Its retail portfolio remains heavily over rented (28%) although many of these are longer term leases. Occupancy was 99% at the end of December, up from 98% in June. The WAULT has been extended by 46% to 7.3 years (5 years in June, to earlier of break or expiry). This is the result of some significant leases agreed in the period, including Vodafone Ireland which has extended its lease by 8 years, Pioneer Investments by 10 years and BOI and the OPW by 5 years each. In total 23%, of leases were re-geared in the period. The gearing ratio was 9.6% (last reported at 9.5%), although this is likely to step up to 22.2% post year end. Green REIT is on-site across 4 projects and these are progressing well and on schedule.

Green continues to make strong progress on the NAV and we expect to see further growth in H216. We are unlikely to make any change to our end FY16 NAV of 151c and we expect this to be driven by further asset management initiatives and its development assets over the next 12 months. We reiterate our Buy call and €1.76 Price target.

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Hibernia REIT Acquisition for €51m in South Docks Area in Dublin

Hibernia has announced the acquisition of Central Quay for €51.3m, an office block Recommendation: Buy completed in 2007, located between Sir John Rogerson’s Quay and Hanover Quay in the Closing Price: €1.26 South Docks Area of Dublin. Central Quay offers 57,700 sq ft of office space over 6 floors Colm Foley plus 26 car spaces and equates to a purchase cost of €890 sq ft. It is currently 88% occupied +353-1-641 6042 and let to three tenants – AWAS Aviation Acquisitions, Indeed Ireland Operations and [email protected] Invesco Global Asset Management.

The contracted rent is €2.5m, or €47 sq ft, representing an initial yield of 4.5%. It has a weighted average period to rent review and break of two and four years respectively and an average unexpired lease term of 10 years. Once fully occupied and following the re-letting of the third floor where the current lease expires in September 2016, the yield on cost is anticipated to exceed 5.5% according to Hibernia.

The property adds to Hibernia’s portfolio in the South Docks area of the city. The price paid is relatively close to the Grade A prime average valuation of 4.65%, though the asset management angles available to Hibernia look set to deliver a c.90bps pick-up.

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Applegreen Appeals planning permission for new service area in Clare

It was reported over the weekend that Applegreen, along with local landowner Shane Recommendation: Buy Brigdale and the Claureen Service station in Ennis, has appealed to An Bord Pleanala Closing Price: €4.95 regarding the planning permission for a new motorway service station in Co. Clare. The Patrick Higgins permission was awarded to Pat McDonagh, the founder of Supermacs and operator of a +353-1-641 0403 number of service areas in Ireland. Applegreen claims the site would go against the county’s [email protected] development plan, be at risk of flooding, as well as being a health and safety risk due to its location beside the heavily trafficked junction 12.

Applegreen has lodged plans with Clare County council for a service area 8km south of the site granted to Mr. McDonagh. Rollout of new sites in Ireland and GB is the key driver of growth in our forecasts for Applegreen. We forecast one new service area site per annum in Ireland (post an additional 2 sites we have visibility on in 2016). Applegreen will report FY15 results on March 14th.

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Page 4 22 Feb. 16 Goodbody Morning Wrap

Origin Enterprises ABF sees lower demand for farm inputs

ABF provided a pre-close trading update for its interim results this morning. Of interest to Recommendation: Buy Origin is the performance of the Frontier business, which is a direct competitor of Origin’s Closing Price: €6.28 Agrii division. The business had a resilient performance, with lower demand for fertiliser and Liam Igoe crop protection being offset by good grain trading income. +353-1-641 9450

[email protected] Origin is due to report interim results on March 10th. We anticipate a similar outcome to ABF with lower demand for inputs, particularly fertilisers, as farmers delay input purchasing decisions. Accounting for over 95% of profits, the performance in the second half of the fiscal year will be, as always, key to the full year outcome for the Group.

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Economic View Uncertain election outcome looking ever more likely

Ahead of this week’s general election, the latest batch of polls do nothing to alter the view of Dermot O’Leary +353-1-641 9167 an uncertain outcome. Consistent with polls published since the campaign began, the current [email protected] Government’s message of stability is not getting through to voters. Instead, voters appear to be moving away from the mainstream parties in favour of a whole range of newer parties and/or independents. Such a move does not bode well for a stable government.

The RedC poll for the Sunday Business Post puts the government support at 38%, down three percentage points since the start of the campaign, although up modestly from the middle of last week. This is well short of the level needed for the government to be returned and also likely to be too low to form a government with the addition of some smaller parties/independents. Fianna Fáil is on 18%, Sinn Fein on 16%, with Independents/Others on 28%. The shift away from the mainstream parties is particularly prevalent in Dublin, where 41% of voters are opting for independents/others, according to the Irish Times/Ipsos MRBI poll.

Using these numbers, the only stable government on the basis of the likely seats is Fine Gael/Fianna Fáil. While both parties have expressed their preference not to be in government together, their policies are quite compatible. Getting agreement through is unlikely to be a smooth ride. See our note from Friday (Permutations and possibilities aplenty, 19th February 2016) for more details.

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UK Economic View Let the Brexit campaign begin

The UK successfully concluded its talks with the EU at the end of last week. This paved the Juliet Tennent +353-1-641 9469 way for the conservative government to set a referendum date of the 23rd June and marked [email protected] the start of what it likely to be a divisive campaign. The “remain” camp were dealt the first blow over the weekend when six cabinet ministers and the conservative mayor of London all declared their support for the “leave” campaign. While not wholly unexpected, there had been speculation that at least five members of the cabinet were going to support the exit vote, it highlights the degree of Euroscepticism that David Cameron is facing within his own party.

Concern amongst Irish executives is also likely to rise in the coming months with a recent Merc Partners poll, published in the Irish Independent this morning, showing that the vast majority of them (87%) believe Brexit will have a negative overall impact on the economy. However, only a quarter thought it likely that the UK would leave.

While we also expect the UK to remain within the EU, opinion polls indicate that the result is far from a foregone conclusion. Indeed, sterling has already weakened due to the uncertainty surrounding the outcome and the next four months of campaigning are likely to see further volatility in the currency.

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UK Builders Merchants Bovis Homes point to further growth in 2016

Bovis Homes, the UK housebuilder, has reported FY15 results with PBT of £160m marginally Robert Eason +353-1-641 9271 ahead of consensus of £158m. Trends in average sales prices (+7%) and completions (+8%) [email protected] were already given in the January trading update. David O’Brien +353-1-641 9230 In the first seven weeks of the year the Group delivered 429 private reservations (479 in david.a.o’[email protected] 2015), equating to a sales rate of 0.60 (0.68 in 2015), however management notes that Sarah Reilly 2015 benefited from some bulk investor reservations. Sales prices in the period have been +353-1-641 6080 ahead of the groups expectations, set prior to the start of 2016. Given the solid forward [email protected] order position (+14% at the start of 2016) and a good pipeline of new site openings Jason Molins management expects further growth and strong returns in 2016. +353-1-641 9141 [email protected]

Overall, this is a solid result from Bovis Homes, in line with its January trading update. Management’s comments on the outlook support our view that growth continues for new residential markets in the UK through 2016, supporting a solid backdrop for the merchants.

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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 7.20 19,663 -2.7 21.0 48.4 8.1 -1.9 15.8 51.4 21.2 14.0 21.8 14.17 19,392 -0.9 8.9 -3.8 -5.6 -0.1 4.2 -1.9 5.8 15.4 11.7 CRH 22.99 18,747 -1.4 6.1 -3.0 -13.9 -0.6 1.6 -1.0 -3.5 14.7 11.9 IAG 5.46 11,089 0.7 13.7 -2.8 -10.6 1.5 8.8 -0.9 0.2 6.8 5.4 HeidelbergCement 66.04 13,103 -1.3 4.9 1.0 -12.7 -0.5 0.4 3.0 -2.1 12.3 11.8 Kerry Group 72.23 12,698 -0.4 2.8 -1.9 -5.3 0.3 -1.6 0.0 6.1 21.9 19.2 Wolseley 36.03 9,370 -0.1 6.2 7.0 -2.4 -0.0 1.6 8.0 3.6 14.7 13.1 Paddy Power Betfair 101.00 8,442 5.2 13.5 7.3 11.2 5.2 8.5 8.3 18.0 32.9 26.6 Mondi 13.21 6,414 0.5 8.2 8.9 -1.0 1.3 3.6 11.1 11.0 11.0 10.8 Bank of Ireland 0.25 7,999 -3.5 -7.5 -18.5 -26.9 -2.8 -11.4 -16.8 -18.1 9.8 8.7

Indices ISEQ performance

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

ISEQ 6,125.37 -0.08 5.73 -3.78 -9.81 6,800 FTSE 100 5,950.23 -0.36 4.25 1.25 -4.68 6,600 DAX 30 9,388.05 -0.80 4.69 -2.86 -12.61 6,400 CAC 40 4,223.04 -0.39 5.71 -1.15 -8.93 6,200 FTSE Eurofirst 300 1,285.07 -0.68 4.30 -1.97 -10.61 6,000 Nasdaq 4,504.43 0.38 3.85 0.61 -10.04 S&P 500 1,917.78 -0.00 2.84 1.94 -6.17 5,800 Dow Jones 16,391.99 -0.13 2.62 2.35 -5.93 5,600 Feb-15 May-15 Aug-15 Nov-15 Feb-16 Nikkei 225 15,967.17 -1.42 6.79 -6.34 -16.11

Exchange Rates

Current Px 1 day Px 1 Week Px Dec15 Avg Ytd

Stg/€ 0.778 0.773 0.778 0.737 0.761 STOXX 600 performance US$/€ 1.111 1.110 1.124 1.086 1.097 CHF/€ 1.101 1.103 1.098 1.087 1.098 420

JPY/€ 125.254 126.107 126.776 130.676 128.428 400

Bonds 380

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

US 2 Yr 0.74 0.05 0.74 -0.12 -0.15 340 US 10 Yr 1.74 0.00 -0.00 -0.31 -0.50 320

UK 2 Yr 0.35 -0.00 -0.04 -0.11 -0.27 300 Feb-15 May-15 Aug-15 Nov-15 Feb-16 UK 10 Yr 1.42 -0.03 - -0.28 -0.47

BD 2 Yr -0.53 -0.02 -0.02 -0.53 -0.15

BD 10 Yr 0.20 -0.01 -0.06 0.20 -0.28

Irish 10 Yr 0.95 0.02 -0.07 -0.02 -0.06

Commodities FTSE 250 performance

% Current 1 day 5 day 1 Mth 1 Yr Brent (ICE $/bbl) 33.01 -3.70 -1.05 14.78 -45.18 18,000 Gasoline (NYM $/Gal) 0.96 -1.34 -8.03 -6.51 -40.64 17,500 Heat Oil (NYM $/Gal) 1.04 -4.82 -2.66 14.55 -44.77 17,000 Nat.Gas 1.80 -2.59 -8.24 -13.73 -36.34 Gold $/oz 1,231.15 1.74 -0.69 13.34 1.79 16,500 Silver $/ozt 15.37 0.79 -1.73 9.55 -8.13 16,000

Copper U$/MT 4,590.00 0.28 2.26 3.37 -19.76 15,500

Wheat $/BU 4.62 -0.11 0.93 -2.69 -12.51 15,000 Feb-15 May-15 Aug-15 Nov-15 Feb-16

Source : FactSet

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