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easyJet Nothing really to report in the H121 release Company Events 20-May easyJet; Q221 Results Builders Merchants Kingfisher delivers blow out Q1 LFL’s 24-May Hilton Food Group; Q121 Trading Update and a strong start to Q2 25-May Greencore; Q221 Results Harworth Group; AGM Fever-Tree Drinks AGM statement indicates trading is in- 26-May British Land Company; FY21 Results Hibernia REIT; FY Results line with expectations Games Workshop Group FY21 Trading Update signals strength of online offering Irish Banks ECB stability review highlights risks still in system; Climate risk becoming more embedded Irish Banks PTSB drops a few clues on Ulster Bank process at its AGM Irish Economic View Ireland appears to be making other friends, trade data shows Economic Events Ireland 21-May PPI Apr21 Wholesale Price Index Apr21
United Kingdom 21-May Retail Sales Apr21
United States
Europe
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easyJet Nothing really to report in the H121 release
th With the headline H121 numbers pre-released on April 14 and the return to the skies Recommendation: Buy stalled until the Q4/September quarter, there was little in this morning’s release for the Closing Price: £9.83 market to get its teeth into. Mark Simpson +353-1-641 0478 The headline pre-tax loss was £701m before an exceptional profit of £56m (mainly from [email protected] SLBs), versus the pre-gain guidance given on April 14th for a loss of between £690-730m; consensus stood at a loss of £706m. On a reported basis, the pre-tax loss came in at £646m
vs last year’s loss of £353m (which included a £160m charge).
Balance sheet liquidity stood at £2.9bn as guided, while net debt stood at £2bn vs £1.13bn at the end of September 2020. Q221 cash burn at £38m/week per week on average outperformed the guidance for £40m/week given at the Q1 trading update. Other balance sheet items of note saw unearned revenues and trade payables increase by £48m and decrease by £441m respectively over the last six months, while trade receivable decreased by £43m for a net change of £350m in cashflow from these item.
Looking forward the company ‘Outlook’ statement says ‘Based on current travel restrictions in the markets in which we operate, easyJet expects to fly c.15% of 2019 capacity levels in Q3 with an expectation that capacity levels will start to increase from June onwards.’ Previously, the April trading update suggested it would fly up to 20% of Q319 capacity, demonstrating the restrictions that current governments’ travel policies are having on activity levels.
The fairly neutral outlook presented by the company will change over the next few months, with much Q421 stronger pre-sales expected to be reported in the Q3 release, but in the short-term the market will see this release as ok but not a catalyst for performance.
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Builders Merchants Kingfisher delivers blow out Q1 LFL’s and a strong start to Q2
Yet again the current strength of RMI is demonstrated by Kingfisher (KGF) who issued a very David O’Brien strong Q1 trading update this morning. KGF’s UK and Ireland LFL sales were up +65% yoy or +353-1-641 9230 38.6% versus 2019. As has been the case until now DIY is outperforming Trade with B&Q david.a.o’[email protected] delivering LFL's of +82% (+42% on a 2-year basis) and Screwfix delivering LFL's of 39% Robert Eason (32.5% on a 2-year basis). +353-1-641 9271 [email protected] Group Q2 LFL sales to the 15th of May are +8.2% yoy or +25% versus 2019 reflecting continued strength in the UK and France and the re-opening of stores in Poland. Q2 LFL’s in Shane Carberry +353-1-6419118 the UK are slightly lower than the Group lower at +6.8% or +24% on a 2-year basis. As a [email protected] result of the strength of Q1 and Q2 to date management are increasing the LFL sales outlook
for H1 to mid to high teens from low double digits. KGF now expects H1 adjusted PBT to be Dudley Shanley ahead of previous expectations, in a range of £580m-£600m (Bloomberg consensus is +353-1-641 9174 £480m).Despite the strong start to the second quarter, H2 LFL sales guidance is unchanged [email protected]
as KGF is planning for LFL scenarios of -15% to -5% (2-year LFLs of -1% to +11%), this Kate McCarthy looks very conservative given the current LFL sales run rate. +353-1-641 9005 [email protected] Specifically for Wickes, Kingfisher comments that B&Q’s new exclusive brand Kitchen range continues to perform well despite lockdown restrictions and it is encouraged by the uptake of the newly introduced installation services suggesting that Kingfisher is starting to gain some traction in kitchens.
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Fever-Tree Drinks AGM statement indicates trading is in-line with expectations
Fever-Tree provided a trading statement this morning ahead of its AGM later today. Overall, Recommendation: Sell despite the continued restrictions and increasing logistic cost pressures, sales performance Closing Price: £25.66 has been strong, and trading has been in-line with Group expectations. This reflects a strong off-trade performance, particularly in the US (+38% yoy), and the Group is focused on Patrick Higgins +353-1-641 0403 working with partners to drive the recovery in the on-trade as it reopens. [email protected]
In the UK, the off-trade channel remained robust at +10% in the 13 weeks ending 18 April
which was ahead of the wider mixer category. While no details have been provided on the performance in the important UK on-trade channel since its reopening and it is too early to predict the pace of the on-trade recovery, there is renewed optimism for H2 given its phased reopening.
In the US, while the on-trade channel is gradually reopening on a state-by-state basis, sales in the off-trade remained robust (+38% in the 12 weeks up to 27 March), again ahead of the mixer category. In Europe the on-trade recovery has lagged the UK and US, though the Group has delivered continued progress in the off-trade. Finally, Fever-Tree has continued to grow strongly in RoW, albeit from a low base. Of interest, Australia, where the on-trade has been open for a few months, has seen a good recovery in suburban areas though city centre demand is taking longer to return.
As a reminder, at the time of the FY20 results in March, the Group guided FY21 revenue growth of 12-16% with the UK at +6-9%, while margins were guided to be broadly flat yoy. The mid-point of the range implies EBITDA growth of c.14% which compares to our forecast for c.15% growth.
Overall, we consider today’s update from Fever-Tree to be broadly in-line. Growth in the US and UK off-trade has been strong which is encouraging, however, we note it now begins to lap much tougher comps so the pace of the on-trade recovery will become key to delivering growth in H2. Furthermore, the increasing logistic cost pressures may weigh on margins. With the stock up c.20% since its FY20 results, Fever-Tree now trades on an FY22 PE of c.49x (42x historic average). As a result, we remain cautious as we consider this valuation to be stretched given the scope for disappointment over the medium term on US growth and margin progression.
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Games Workshop Group FY21 Trading Update signals strength of online offering
GAW released its trading update this morning in respect of FY21. Revenue is expected to be Recommendation: Buy not less than £350m, c.30% y.o.y growth in line with our forecasts whilst PBT of £150m Closing Price: £110.30 (42.8% margin), is 7% ahead of our expectations and 68.5% ahead y.o.y. That is likely down to a higher share of online sales (Goodbody: 22%). Licensing revenue is in line with Patrick O'Donnell +353-1-641 6013 our expectations at £15m. Total dividend per share is 235p up 62% y.o.y in line with group [email protected] policy of distributing excess cash. The group will report full year results on July 27th.
This is a very solid update from GAW, showing strong traction over the lockdown and growing the higher margin online channel despite the closure during lockdowns of its trade and retail stores contributing to better than anticipated PBT. We make no changes in respect of our FY22 forecasts at this point with online representing 23% of group sales.
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Irish Banks ECB stability review highlights risks still in system; Climate risk becoming more embedded
The ECB yesterday published its May 2021 Financial Stability Review. In broad terms, it Eamonn Hughes notes the uneven economic impact of the pandemic implies risks are concentrated in specific +353-1-641 9442 sectors and countries; banks’ asset quality is holding up, but profitability is weak, with the [email protected] potential for credit to worsen; and finally that disorderly corrections in financial market Barry Egan segments may affect non-banks with large exposures to corporates with weak fundamentals. +353-1-641 6059 The ECB envisages policy support, particularly for corporates, to move from being broad- [email protected] based to being more targeted, but as the support is removed, considerably higher insolvency rates can’t be ruled out. Whilst sentiment towards banks has improved, the ECB notes bank
profitability remains weak and the prospects for lending remain uncertain and asset quality
may deteriorate with a lag. The FSR shows that EU bank ROEs fells from 5.3% in 2019 to
just 1.3% in 2020, with losses in Ireland, Greece, Portugal, Spain and Cyprus, all previously heavily hit GFC-hit countries, so incurring large impairment charges. ROEs are set to improve to c.3% in 2021 and 6% in 2022.
This Financial Stability review also includes new analysis about the impact of climate change on financial stability. It concludes that that a significant share of bank loan exposures to corporates could be subject to a high level of climate-related physical risk, directly affecting firms’ operations or the physical collateral used to secure loans. Both the assessment of risks and the allocation of financing to support the transition to a greener economy can benefit from enhanced disclosures and data, as well as clearer green finance standards. Preliminary results from climate stress testing indicate clear benefits from acting early. The comments in the FSR on the climate coincide with comments from the ECB Chief Economist Philip Lane at the Dublin Climate Dialogues Conference that a disorderly or incomplete transition to net zero carbon emissions poses a major risk to the global financial system. He added that the financial sector has a lot of work to do in terms of reallocating capital to the sectors that need to expand and that “having comprehensive year-by-year transition policies would be highly desirable”. Central banks are increasingly embedding climate risk issues into their financial stability assessment (see FSR above!!) and supervision. Our Minister for Finance said a new Climate Action Plan for Ireland would be launched with the renewed National Development Plan this summer.
The broad conclusions from the ECB’s FSR doesn’t surprise us. Whilst it highlights the headwinds still for the banking sector, we do think that the upcoming EBA European banks stress tests will provide supervisors with a pretty neat assessment of the ability of bank balance sheets to meet the oncoming rise in Stage 3 loans and
if provisions taken to date – in combination with equity – are sufficiently resilient. This document is intended for the sole use of Goodbody Investment Banking and its affiliates We believe they are in the case of the Irish banks, with CET1 ratios in line with or above peers (indeed Irish bank leverage ratios of c.9% compare to c.5% across the EU) but also with provisions of c.200bps and 130bps taken by AIB and BOI respectively last year vs EU averages of c.80-90bps. So, we think the Irish banks will fare relatively well in the upcoming stress tests. The results will be published before the end of July. It is also worth saying, in our view, that the recent exits from the market (UB and KBC) also strengthen the look forward position of the remaining incumbents, something that won’t be captured in the stress test. On the climate issue, clearly much work has to be done by all participants, both in assessing physical and transition risks. The Irish banks have committed to science based targets (indeed AIB already has set loan book targets by 2030 and 2040) and TCFD-related disclosures, so that’s helpful, but in an EU context, their direct exposure to high emitting sectors is also lower than peers. But climate stress tests by the ECB next year will provide further evidence in this regard.
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Irish Banks PTSB drops a few clues on Ulster Bank process at its AGM
AIB had an IMS out on the same day as its AGM date two weeks ago and it was PTSB’s turn Eamonn Hughes to virtually face shareholders at its AGM yesterday (BOI’s AGM will be next week). Whilst +353-1-641 9442 reporting on Q1 trading in an IMS in early May, there were a few nuggets at the AGM in [email protected] relation to the ongoing discussions with Ulster Bank (UB). Barry Egan
+353-1-641 6059 The bank indicated that talks with Natwest are continuing but “what’s in and what’s out” of a [email protected] final deal (according to Irish Independent), if it happens, has still not been decided. However, the CEO did note that the tenure of the negotiations – three months – suggested
both parties remain serious about a transaction but finding areas of overlap was not simple.
The CEO said he was aiming to agree an MOU with UB this year. The CEO indicated he would
not comment on whether UB’s trackers would be included in any deal and there was also no commitment either way in relation to UB’s c.500k current account customers, though management acknowledged the difficulties in such a transfer. Naturally enough, the CEO was not drawn on the potential cost nor funding of any transaction, but did suggest that the feedback from its private sector shareholders (excluding the State) was positive should equity be raised via the stock market but that the bank would approach all shareholders for cash if it needs capital for any transaction.
Media commentary speculates that PTSB has been linked to c.€9bn of UB loans which would require c.€550m of equity to support, figures with which we concur. We would be surprised if the trackers – which we estimate at c.€6.5bn – might still be “in scope” since our analysis shows they would need a c.4% haircut to deliver the same ROEs as PTSB’s new lending, but that haircut would wipe-out all the CET1 Ulster Bank has supporting them, so that looks less attractive to the seller in our view. It’s difficult to make a call on the shape of the final transaction for sure until there is an MOU, but we are of the view the deal as speculated would be ROE enhancing even with the possible capital need equating to 0.8x of PTSB’s market cap. This improvement in ROEs would improve the sustainability of the PTSB franchise, but this new capital – given the scale relative to the market cap - is likely to come at a discount, splitting the economics in favour of the new money vs existing shareholders unless following their rights. So clearly one to watch! In the meantime, BOI’s AGM is next week, so we might get some nuggets from them on progress with their KBC deal.
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Irish Economic View Ireland appears to be making other friends, trade data shows
Irish trade data show a significant shift in trade flows in the first quarter of this year, Shaun McDonnell reflecting early Brexit-related impacts. +353-1-641 9127 [email protected]
The most interesting points from yesterday’s release lie within the regional breakdown, in which it appears Ireland is finding alternative trading partners to the UK. Regarding the UK, exports from Ireland remained flat in Q1 (1% yoy). However, imports took a -38% yoy as Ireland looked to buy from elsewhere to avoid UK customs checks in the aftermath of Brexit. While this may be alarming on the surface, Ireland looks to have diversified its trade, shown by increases in imports from Northern Ireland (+44% yoy) and the RoW economies (+22% yoy), while imports from EU-27 countries fell 6% over the three-month period, although there was a bounce in March. Moving to the overall picture, Irish exports remained robust, growing by 5% yoy in Q1. Meanwhile, imports fell 9% in the same period, resulting in a trade surplus of 12.6bn, up 26% yoy.
While Brexit has very much overtaken Covid-19 in terms of priorities, it remains a significant risk to the Irish economy. Ireland is showing its ability to diversify and mitigate against that risk so far. Ireland must sustain these relationships with its new friends, whom will be a vital source of trading activity as further diversification occurs in the coming years.
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