Morning Wrap

Morning Wrap Today ’s Newsflow Equity Research 10 Mar 2021 09:14 GMT Upcoming Events Select headline to navigate to article Breedon Group FY20 – Stellar H220 performance Company Events 10-Mar Breedon Group; FY20 Results UK Economic View Buoyancy in UK new home sales Ibstock; FY20 Results continues according to our February UK Siteworks Restaurant Group; FY20 Results 11-Mar Derwent London; Full Year Results Ibstock 2021 ytd “ahead of run rates” achieved in Q420 Eurocell; FY20 Results 16-Mar ARYZTA; H121 results Restaurant Group Capital raise reduces risk through the Ferguson; Q221 Results Greggs; FY20 results recovery phase First Derivatives Solid FY20 from FDM, positive outlook commentary Irish Banks New Sustainable Finance Disclosures Regulations launch today UK Banks MLAR 4Q20 data point to low bound for possessions while arrear tick up Economic Events Ireland 11-Mar CPI Feb21 15-Mar Trade Balance Jan21 United Kingdom 12-Mar Construction Output Jan21 GDP Jan21 Industrial Prod. Jan21 Manufacturing Prod. Jan21 Trade Balance Jan21 United States Europe This document is intended for the sole use of Goodbody Investment Banking and its affiliates Goodbody Capital Markets Equity Research +353 1 6419221 Equity Sales +353 1 6670222 Bloomberg GDSE<GO> Goodbody Stockbrokers UC, trading as “Goodbody”, is regulated by the Central Bank of Ireland. In the UK, Goodbody is authorised and subject to limited regulation by the Financial Conduct Authority. Goodbody is a member of Euronext Dublin and the London Stock Exchange. Goodbody is a member of the FEXCO group of companies. For the attention of US clients of Goodbody Securities Inc, this third-party research report has been produced by our affiliate, Goodbody Stockbrokers Goodbody Morning Wrap Breedon Group FY20 – Stellar H220 performance Breedon has reported an FY20 group EBIT of £76.5m, marginally ahead of our numbers Recommendation: Buy (2%). This implies that underlying EBIT grew by 16% in H220 (9% lfl) compared to the Closing Price: £0.92 initial guidance of flat yoy, which illustrates the strength of performance. Net debt came in at £318m for the year, compared to guidance for “well below” £400m in the December update David O'Brien +353-1-641 9230 (Goodbody c.£383m). While recognising some of this beat will unwind in FY21 this is a stellar david.a.o'[email protected] outcome for cash generation. Management has confirmed it intends to pay a maiden dividend with the interim results. The outlook is upbeat for the long term while management notes that forecasts for the market suggest steady growth in FY21 & FY22. The key highlights of the results are: (i) Looking back on H220 as a whole shows the strength of the Breedon business model which generated 10% organic sales growth and 9% organic EBIT growth; (ii) A maiden dividend will be paid with the interim results marking another important milestone in the company’s journey; (iii) Cash generation has been stellar with net debt coming in a £318m compared to our forecast of £383m. An element of this will clearly unwind in FY21 but leaves the company in a strong position from a leverage point of view should any development opportunities arise; (iv) Pat Ward will leave the group at the end of March after five years at the helm. That period has seen the group grow strongly organically, undertake material development activity while maintaining a strong balance sheet and deliver impressive returns. Pat will be succeeded by Rob Wood who played a key part in that performance ensuring a seamless transition. Overall, this is an impressive performance from Breedon both operationally and from a cash management point of view. Despite lockdown measures in Ireland we are leaving forecasts unchanged and reiterate our positive stance. Home… This document is intended for the sole use of Goodbody Investment Banking and its affiliates Page 2 10 Mar. 21 Goodbody Morning Wrap UK Economic View Buoyancy in UK new home sales continues according to our February UK Siteworks Concerns of a March “cliff-edge” wane as UK housing demand shows continued resilience in Dermot O’Leary February. Couple this with stock for sale close to historic lows, results in steady house price +353-1-641 9167 [email protected] growth of c.3% according to our most recent Siteworks. All of this supports our positive view on the UK housebuilders. Shaun McDonnell +353-1-641 9127 [email protected] Property de-listings, our proxy for UK housing demand, were down just 2% yoy against a tough comparative in the “Boris-Bounce” of early 2020, as any prior hit to sentiment around a March cliff-edge is waned. We compare to 2019 levels and find a +32% increase indicative of how stark the performance in underlying housing demand really is. On a regional basis, Scotland (+20% yoy) and the South-West (+14% yoy) performed the strongest against 2020 levels, while the East of England (+71%) compared strongest against 2019 levels. Meanwhile, the North-West is the only region that experienced a downfall in new home sales against both 2019 and 2020 levels. New property listings, our proxy for supply-side dynamics, was down 6% yoy in the latest four-week period despite its dramatic recovery from April 2020 lockdown. Again, regional variation comes through in the data, with a 9% growth rate ytd in new properties in London versus respective declines of 31% and 27% ytd in the North-West and West-Midlands. In contrast, Energy Performance Certificates (EPC’s), an alternative gauge for the future direction of supply, exhibited an increase in issuance of 14% yoy and 6% ytd. With the demand-side performance outstripping much of the supply-side recovery, the stock for sale took another turn for the worst in February, returning back toward all-time lows leaving levels 23% below 2020. This was most pronounced in the North-West (-31% yoy), Wales (-31% yoy) and the East (-29% yoy). In contrast to the relative volatility in widely known UK house price indicators, largely dominated by second-hand transactions, annual house price growth remained steady at c.3% yoy according to the Goodbody UK New Homes Asking Price Index. Our index is the only mix-adjusted asking price index for new homes. Sentiment around a March “cliff-edge”, previously weighing on UK housebuilders, has turned around on the back of strong updates from the sector and the announcement of government guaranteed 95% LTV mortgages. The sector is up c.8% ytd versus c.4% in the FTSE 100. Despite that run, our housebuilding analysts still believe the sector offers value, with the MSCI World trading on 20.7x PE versus the FTSE 100 on 14.8x and UK housebuilders on This document is intended for the sole use of Goodbody Investment Banking and its affiliates 12.2x PE looking particularly attractive. The continued resilience in UK housing demand in our most recent Siteworks in the waned any concerns of a March “cliff-edge”. Indeed the strong forward orderbooks exhibited by the housebuilders in addition to demand-side measures such as a stamp-duty holiday extension and government guaranteed 95% LTV mortgages, are likely to sustain the performance in demand until later in 2021. This helps underpin our belief that the UK housebuilders offer value trading on 12.2x PE. Home… Page 3 10 Mar. 21 Goodbody Morning Wrap Ibstock 2021 ytd “ahead of run rates” achieved in Q420 Ibstock issued FY20 results this morning in which it reported group EBITDA of £52.1m, in Recommendation: Buy line with both our forecast and consensus, of c.£52m. Given that Ibstock released a detailed Closing Price: £2.41 trading update on January 21st, the key incremental pieces of news from today’s release are: i) Much like what Forterra alluded to yesterday, 2021 has started well and Ibstock notes David O'Brien +353-1-641 9230 that trading ytd is actually “slightly ahead of run rates achieved in Q4 2020”. In particular david.a.o'[email protected] management explicitly flags clay brick volumes running ahead of Q4 levels. For context, in January management had noted that Q4 itself was “modestly ahead of prior year levels”; ii) The strength of trading over recent weeks has left management “confident for the year ahead”. Illustrative of that confidence, the group note that it is “comfortable” with current market consensus of £93m. We are currently forecasting £91.5m and will move more in line with consensus as a result of this morning’s update. The group issued a detailed trading update on January 21 st so there was little to surprise in the FY20 numbers this morning. Total revenue came in at £316m versus guidance of “around £315 million”, and our forecast of £315m. On EBITDA, in January Ibstock noted it expected to report adjusted EBITDA for 2020 “modestly above” the previous guidance of £50m, which led our forecasts, and indeed consensus, to c.£52m. With that in mind, an EBITDA outturn of £52.1m is largely as expected. This equates to an EBITDA margin of 16.5% which although being still quite depressed versus the prior year (29.9%), it does represent a significant improvement in H2 (H1 7.3%, H2 23%). Indeed management do note that adjusted EBITDA margins in both divisions were getting “back close to the underlying levels achieved in the prior year towards the end of the year”. Combining this with Net cash (pre IFRS) of £69m is broadly in line with the c.£70m stated in the January update. Overall this is yet another solid update from a UK Brick manufacturer and numbers for FY21 look well underpinned given the encouraging start to 2021.

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