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 ; 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 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 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

Goodbody Stockbrokers UC, trading as “Goodbody”, is regulated by the Central of Ireland. In the UK, Goodbody is authorised and subject to limited regulation by the Financial Conduct Authority. Goodbody is a member of 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.

Home…

This document is intended for the sole use of Goodbody Investment Banking and its affiliates

Page 4 10 Mar. 21 Goodbody Morning Wrap

Restaurant Group Capital raise reduces risk through the recovery phase

Restaurant Group this morning reported FY20 results. The year was heavily disrupted by the Recommendation: Buy COVID pandemic and the resulting government restrictions. Revenue for FY20 was down Closing Price: £1.10 57% YoY to £460m, in line with expectations of £473m. EBITDAe was £8.7m, and it had a loss before tax of £48m versus our expectations of a loss of £54.5m (IAS 17). Statutory loss Paul Ruddy +353 1 641 6024 before tax was £128m on an IFRS 16 basis, with the delta primarily being restructuring [email protected] charges and lease treatment. Net debt came in at £340m, slightly lower than our forecast and in line with recent guidance. It highlights that net debt was £400m as of 28 February,

post a £40m WC outflow, £6m of interest payment, and £12m of operational cash burn.

The group is today announcing a £175m capital raise to facilitate the acceleration of the group’s medium-term leverage target and to provide flexibility to invest and grow the business. It will be used to: i) improve its liquidity position to protect against a resurgence of Covid; ii) accelerate its deleveraging target of below 1.5x medium term (ex-leases); iii) strengthen its ability to capitalise on selective site expansion in Wagamana and pubs. It will also help with the interest costs given blended cost of debt of 75. The capital raise is via a firm placing and open offer. The terms are 95.3m Ordinary Shares to be issued through the Firm Placing and 79.7m Ordinary Shares will be issued through the Placing and Open Offer, on the basis of 5 New Ordinary Shares for every 37 Existing Ordinary Shares, in each case at an Offer Price of 100 pence per New Ordinary Share. The Capital Raising has been fully underwritten by the Joint Bookrunners, subject to the conditions set out in the Placing Agreement.

Looking forward, the Pubs and Wagamama businesses account for 58% of the estate and we would have a high level of confidence that they will recover strongly when restrictions are lifted. The legacy leisure business will benefit from better rental terms, lower UK restaurant supply, and the increased contribution from delivery. The group notes that it expects a 30-35% reduction in casual dining supply as of the end of 2021. Delivery and takeaway would also encourage for the recovery stage with Wagamama tracking at £3.3m of revenue a week and Leisure at £1.0m. ND/EBITDA should be on track to achieve its medium-term target of 1.5x by 2023. Given leverage was a key overhang for the group, it should now be well placed to benefit from the recovery phase.

There is a presentation at 8am - Conference Call: +44 (0)330 336 9411 Confirmation Code: 2578687

This document is intended for the sole use of Goodbody Investment Banking and its affiliates

Home…

Page 5 10 Mar. 21 Goodbody Morning Wrap

First Derivatives Solid FY20 from FDM, positive outlook commentary

FDM Group, a consulting peer of First Derivatives, issued results for the year to December Recommendation: Buy this morning, having already pre-announced headline detail in January. Revenue declined Closing Price: £26.50 just 1% YoY, though PBT was down 22%, driven by a 9% decline in consultant numbers at year-end, and an incrementally lower utilization rate – 94.8% vs 96.1% the prior year. Gerry Hennigan +353-1-641 9274

[email protected] In terms of the outlook, the company is indicating that “2021 has started well, with good levels of demand and strong deal volumes across most of our geographies; recruitment and

training levels have been significantly ramped up to meet this demand”. Reflecting that outlook, a final dividend of 15.0p per share, giving a total dividend for the year of 46.5p, has been declared, an increase of 191% on 2019's dividend of 16.0p.

For the year to February we see FD’s consulting revenue (c.38% of forecast FY21 sales) as being broadly ‘flat’ on the year. As such, the statement from FDM this morning supports that outturn, while providing confidence in the level of activity for the year ahead.

Home…

This document is intended for the sole use of Goodbody Investment Banking and its affiliates

Page 6 10 Mar. 21 Goodbody Morning Wrap

Irish Banks New Sustainable Finance Disclosures Regulations launch today

The substantive provisions of the Sustainable Finance Disclosure Regulation (SFDR) come Eamonn Hughes into effect today, March 10th, though the related technical standards have been delayed until +353-1-641 9442 a later date. The SFDR was introduced by the European Commission as part of a package of [email protected] legislative measures to underpin the Commission’s Action Plan on Sustainable Finance. The Barry Egan SFDR introduces harmonised rules for financial market participants and financial advisers on +353-1-641 6059 transparency in relation to sustainability risks, the consideration of adverse sustainability [email protected] impacts in their investment processes and the provision of sustainability-related information with respect to financial products. According to the Central Bank, managers will need to

determine the fund’s appropriate product classification and ensure pre-contractual

disclosures are appropriate to their particular funds. It has introduced a fast-track process to facilitate the likely surge in updates likely from asset managers on the new requirements.

So basically, under the new rules, investment products will have to be effectively categorised as sustainable and non-sustainable. The new regulations and reporting requirements will reduce the likelihood for “greenwashing”, bringing in tougher disclosure requirements on funds, so this will also accelerate more interactive engagement on ESG-related factors between asset managers and the companies in which they invest. We recently wrote an in-depth report on the ESG credentials of the Irish banks (Leading the charge: Are banks the new ESG gatekeepers?) and both AIB and BOI again upscaled their Sustainability reports in their latest annual reports published in the past week. Our report also looked at the regulatory backdrop for banks from recent ECB and EBA discussions papers and Ireland’s infrastructure cost opportunities. Our analysis shows the main Irish banks are already making strong progress on managing ESG risks, so are actively managing investment risk for their stakeholders. Both Irish banks rate highly with 3rd party ESG rating agencies, but AIB is the more highly rated of the two, including ranking at a very high No 71 of 1,029 banks globally at Sustainalytics, with BOI a still very good 177.

Home…

This document is intended for the sole use of Goodbody Investment Banking and its affiliates

Page 7 10 Mar. 21 Goodbody Morning Wrap

UK Banks MLAR 4Q20 data point to low bound for possessions while arrear tick up

The BoE published its quarterly Mortgage Lenders and Administrators (MLAR) statistics for Barry Egan 4Q20 yesterday which provide some interesting nuggets on volumes, new lending +353-1-641 6059 characteristics, fixed/variable dynamics, borrower affordability and asset quality. At a high [email protected] level, mortgage lending volumes were particularly strong in 4Q20, with £76.6bn of gross John Cronin mortgage lending in the three months, +22.5% q/q (+4.2% y/y), the strongest quarter from +353-1-641 9187 a volume perspective since 4Q07. Furthermore, new commitments for 4Q20 stood at [email protected] £87.7bn, the largest on record since 3Q07 and up significantly by 11.2% q/q (+24.2% y/y). Interestingly, a significant slowdown in redemptions (partially owing to widescale granting of

mortgage payment holidays) led to £20.0bn of net mortgage lending in the quarter,

reflecting growth in the mortgage stock of +2.9% y/y to £1,541bn.

Looking deeper into the data, there are a few interesting points to call out: 1) The weighted average new business rate in 4Q20 was +12bps q/q to 2.06%, driven by a 12bps rise in average fixed rates to 2.06% while average new variable rates increased by 15bps q/q to 2.06% (does not weigh on the market average due to low volumes – 92.4% of business completed on fixed); 2) Lending for house purchases accounted for c.75.1% of new lending in 4Q20, the highest ever on record, while remortgaging accounted for a smaller share and was the lowest on record in 4Q20, representing just 18.5% of gross mortgage lending (3Q20: 25%). There are numerous moving parts, but there is no doubt that stamp duty had the most significant impact as consumers availed of the one-time tax holiday to purchase a home, rather than electing to remortgage; 3) The mix of house purchase lending shifted slightly, with first-time buyers (FTBs) accounting for 24.3% of house purchase lending (22.9% in 3Q20), which is a record high. BTL contracted slightly to represent an 11.2% share of new lending (from 12.5% in 3Q20); 4) The proportion of new lending written at low LTVs (<75%) remained flat q/q at 60%. Unsurprisingly, a material increase was evident in the 75-90% LTV band to 38.8% of volumes (from 36.1% in 3Q20) as many lenders reduced their risk exposure and chose to conduct business at this level. Finally, the proportion of new lending at over 90% LTV fell dramatically to the lowest level seen since 4Q09 to just 1.06% of volumes (from 3.2% in 3Q20), in line with media reports and the latest Moneyfacts data, which show that the availability of 90% LTV products remains thin on the ground; 5) Turning to asset quality, the data show that there were £14.3bn of mortgage arrears outstanding (+3.4% q/q; +6.4% y/y) accounting for 0.93% of the mortgage stock. Elsewhere, new possessions remained close to historic lows owing to the ban on evictions, with just 435 new possessions in 4Q20 (377 in 3Q20), bringing the total stock of possessions to 1,933 units, the lowest on record.

This document is intended for the sole use of Goodbody Investment Banking and its affiliates Overall, the latest MLAR data captures the strength in mortgage transaction activity in the last quarter of 2020, with mortgage volumes up significantly, driven by the release of pent-up demand, the temporary reduction in stamp duty, and the structural shift in demand for housing in the UK to larger properties further away from cities. The asset quality data benefits from the impact of mortgage payment breaks and the ban on possessions, with the 4Q20 data likely to represent a low point. While the extension of the stamp duty holiday and strong deposit build remain supportive forces in the context of 1H21 transaction activity, question marks still remain over the sustainability of this recovery on a longer view.

Home…

Page 8 10 Mar. 21 Goodbody Morning Wrap

Issuer & Analyst Disclosures

Analyst Certification The named Research Analyst certifies that: (1) All of the views expressed in this research report accurately reflect my personal views about any and all of the subject securities and issuers. (2) No part of my remuneration was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this report.

Regulatory Information Goodbody Stockbrokers UC, trading as Goodbody, is regulated by the Central . In the UK, is also subject to regulation by the Financial Conduct Authority. Goodbody is a member of and the London Stock Exchange. Goodbody is a member of the FEXCO group of companies. This publication has been approved by Goodbody. The information has been taken from sources we believe to be reliable, we do not guarantee their accuracy or completeness and any such information may be incomplete or condensed. All opinions and estimates constitute best judgement at the time of publication and are subject to change without notice. The information, tools and material presented in this document are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities.

Conflicts of Interest Goodbody has procedures and policies in place to identify and manage any potential conflicts of interest that arise in connection with its research business. Goodbody analysts and other staff who are involved in the preparation and dissemination of research operate and have a management reporting line that is independent to its business. Information barriers are in place between the Corporate Finance arm and the Research arm to ensure that any confidential and or price sensitive information is handled in an appropriate manner.

Our Investment Research Conflicts of Interest Policy is available at Conflicts of Interest

Investors should be aware, that, where appropriate, research may be disclosed to the issuer(s) in advance of publication, in order to correct factual inaccuracies only and not to materially amend the research in any way. Goodbody is satisfied that it has operational procedures in place, which ensure that such disclosures will not compromise the report’s objectivity.

Goodbody has provided investment banking services to AIB Group, Applegreen, ARYZTA, Bank of Ireland, Cairn Homes, Collagen Solutions, Datalex, Draper Esprit, FBD Holdings, First Derivatives, Grafton Group, Greencore, Hammerson, Harworth, Hibernia REIT, ICG, Kingspan, Origin Enterprises, Playtech, Rank Group, Supermarket Income REIT, Total Produce and Yew Grove REIT in the past 12 months.

Goodbody Stockbrokers acts as corporate broker to AIB Group, Applegreen, ARYZTA, Cairn Homes, Datalex, Draper Esprit, FBD Holdings, First Derivatives, Grafton Group, Greencore, Hibernia REIT, ICG, Kingspan, Origin Enterprises, Playtech, Rank Group, and Yew Grove REIT The list of companies for which Goodbody acts as market maker and on which it provides research, is available at Regulatory Disclosures

This document is intended for the sole use of Goodbody Investment Banking and its affiliates

Page 9 10 Mar. 21 Goodbody Morning Wrap

Other disclosures

We would like to inform you that Eamonn Hughes holds shares in AIB Group

A description of this company is available at Company Descriptions

All prices used in this report are as at close of business of the previous working day unless otherwise indicated.

A summary of our standard valuation methods are available at Valuation Methodologies

A summary of share price recommendations and whether material investment banking services have been provided to these companies is available at Regulatory Disclosures

Other important disclosures are available at Regulatory Disclosures

Goodbody updates its recommendations on a regular basis. A breakdown of all recommendations provided by Goodbody is available at Regulatory Disclosures Where Goodbody has provided investment banking services to an issuer, details of the proportion of buys, holds and sells attributed to that issuer will also be included. This is updated on a quarterly basis.

The date on which stock recommendations were first released for all stocks mentioned in this report are available at https://www.goodbody.ie/assets/Reg_Disclosures.pdf. If a different recommendation has been made in the previous twelve months, this will also be disclosed here.

Recommendation Definitions Goodbody uses the terms “Buy”, “Sell” and “Hold. The term “Buy” means that the analyst expects the security to appreciate in excess of 10% over a twelve month period. The term “Sell” means that the security is expected to decline in excess of 10% over the next twelve months. The term “Hold” means that the analyst expects the security to neither appreciate more than 10%, or depreciate more than 10% over the next twelve months.

On 26th November, 2012, the terms “Add” and “Reduce” were removed from the Recommendation Definitions and both were replaced with the “Hold” recommendation. Any Previous Recommendation that refers to either an “Add” means that the analyst expected the security to appreciate by up to 15% over a twelve month period. Any Previous Recommendation to “Reduce” means that the analyst expected the security to decline by up to 15% over the next twelve months.

In the event that a stock is delisted the firm will automatically cease coverage. If however the firm ceases to cover a stock for any other reason the firm will disclose this fact.

Distribution of research to clients of Goodbody Securities Inc (GSI) in the US

GSI distributes third-party research produced by its affiliate, Goodbody GSI is a member of FINRA and SIPC GSI does not act as a market-maker.

This information was current as of the last business day of the month preceding the date of the report. An affiliate of GSI may have acted, in the past 12 months, as lead manager/co-lead manager of a publicly disclosed offer of the securities in this company. Investors should be aware that an affiliate of GSI may have provided investment banking or non-investment-banking services to, and received compensation from this company in the past 12 months or may provide such services in the next three months. The term investment banking services includes acting as broker as well as the provision of corporate finance services, such as underwriting and managing or advising on a public offer. All transactions by US persons involving securities of companies discussed in this report are to be effected through GSI.

Disclaimer While all reasonable care has been taken in the production and dissemination of this report it is not to be relied upon in substitution for the

exercise of independent judgement. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that This document is intended for the sole use of Goodbody Investment Banking and its affiliates any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you.

Private customers having access, should not act upon it in anyway but should consult with their independent professional advisors. The price, value and income of certain investments may rise or may be subject to sudden and large falls in value. You may not recover the total amount originally invested. Past performance should not be taken as an indication or guarantee of future performance; neither should simulated performance. The value of securities may be subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities.

All material presented in this report, unless specifically indicated otherwise is copyright to Goodbody. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of Goodbody.

Goodbody, Ballsbridge Park, Ballsbridge, Dublin 4, Ireland T (+353 1) 6670400 W www.goodbody.ie E [email protected] Page 10 10 Mar. 21