Morning Wrap

Today ’s Newsflow Equity Research 23 Jun 2021 08:26 BST Upcoming Events Select headline to navigate to article

Irish Irish Government to start selling down some Company Events 23-Jun Berkeley Group; FY21 Results of BIRG stake Berkeley Group On track to continue to deliver against medium-term targets Building Materials Further momentum in the recovery of US non-residential Draper Esprit Investment Update tinyBuild Back catalogue performing well as group prepares for Hello Neighbor 2 launch

Economic Events Ireland 28-Jun Retail Sales May21 30-Jun ILO Unemployment Rate Jun21

United Kingdom 24-Jun BoE Official Rate 29-Jun BoE Mortgage Approvals May21 30-Jun GDP Q1 Imports Q1 Exports Q1

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 . In the UK, Goodbody is authorised and subject to limited regulation by the Financial Conduct Authority. Goodbody is a member of and the 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

Irish Banks Irish Government to start selling down some of BIRG stake

The Irish government has announced a trading plan to start selling down its 13.9% stake in Eamonn Hughes Bank of Ireland. It has a pre-arranged trading plan over the next six months to target that +353-1-641 9442 up to, but no more than 15% of the expected total trading volume in BOI be sold. The [email protected] release also notes the shares will not be sold below a certain price per share, which will be

kept under review. Whilst undoubtedly there is a large part of the 14% stake to place over

the next 6 months, the move to exit by the State must be seen as a positive development for both the bank and the wider financial sector.

Firstly, we believe the stake sale must be seen as an important step in the normalisation of

the domestic banking system. Back in early March, the Minister for Finance changed the political narrative, in our view, in a parliamentary speech where he acknowledged headwinds for the banks, linked capital levels to mortgage rates and expressed the desire for banks to be profitable, generate capital and contribute to economic growth. The intention to place BIRG’s shares reinforces this narrative, in our view. Obviously, and not for today, but this raises the obvious question that the journey must start at some stage now on AIB (71% shareholding) and PTSB (75% shareholding, or does the proceeds from any BOI sale allow the State to be actively involved in any PTSB equity raise, which we estimate at potentially €500m for the purchase of Ulster Bank loans if and when it gets to an MOU).

Secondly, we wonder does the pending sale now change the narrative in time on the pay caps for the banking sector in Ireland, the lack of variable pay and removal of the bonus tax. This should make the sector better placed to attract talent and deliver better longer-term outturns, bearing in mind this issue was scoring badly for the sector on S and G considerations for investors. This issue is separate from the shareholdings, but over time, particularly whenever the SEARS legislation passes (Senior Executive Accountability Regime), that journey may commence. It may still take time, and obviously the State has large shareholdings in both AIB and PTSB, but it may come on the radar of investors as a positive development. Also, we would anticipate that staff in BOI hugely welcome the news, and at the other banks.

Thirdly, from a pure valuation perspective, our current COE at BIRG incorporates a 75bps premium for Irish political system “noise” in relation to the banking system, some of which can be reduced as the removal of stake will lower the State’s perceived involvement.

Fourthly, whilst a chunk of BOI is now likely to be placed (though limited in terms of volume

each day), we think the trading plan will improve the liquidity in BIRG’s share trading. This document is intended for the sole use of Goodbody Investment Banking and its affiliates

The 13.9% stake is currently valued at €675m (150.4m shares). Given recent volume activity, we estimate that it is possible that roughly two-thirds of the stake could be placed over the next 6 months. Should the liquidity indeed improve, that may also attractive potential new investors onto the share reqister, allied to the background consolidation story in Irish banking (exits of KBC and Ulster Bank) and current cheap valuations. Given recent share price moves, with the stock down 17% from its recent highs, BIRG is now trading on just 6.4x FY23f earnings, 3.6x pre-provision profit and 0.55x P/TNAV for ROEs that are potentially 9-10% in 2023, so is very cheap, in our view and we think the earnings momentum bias still remains to the positive. BIRG’s capital is also strong, anticipated to be 13.5% at year end.

Home…

Page 2 23 Jun. 21 Goodbody Morning Wrap

Berkeley Group On track to continue to deliver against medium-term targets

Berkeley released FY21 (to April 30th) this morning. For us the four key takeaways are: i) Recommendation: Hold PBT has come in at £518m having previously been guided to be a “similar” level to last Closing Price: £46.40 year’s £504m; ii) Sales prices remain “firm” (same language used in April trading update) whilst build cost inflation, having been “stable” in 2020 has increased to c.4% since the start Shane Carberry +353-1-6419118 of 2021; iii) With respect to previously flagged surplus cash of £450m, Berkeley has [email protected] announced that it will return £228m of surplus capital via a B share scheme. This is in excess of the scheduled returns for 21/22 (i.e. £280m per annum); iv) The focus is clearly on the

medium-term with the Group targeting a planned 50% increase in delivery over the business plan period (2024/25). The medium-term guidance for an average PBT of £500m per annum out until 2025 remains in place.

Revenue came in at £2.2bn versus our forecasted £2bn. The main deviation was mix as ASP came in at £770k versus our forecasted £725k although volumes were also a touch ahead (4%) at 2,825 versus our 2,723. Ultimately this translated into PBT of £518m, ahead of previous guidance for PBT to be a “similar” level to last year’s £504m and indeed our forecast of £504m, although consensus was already £518m. The group finished the year in a net cash position of £1.1bn.

On current trading the group note “resilient sales” and that enquiry levels in London are now running ahead of pre-pandemic levels which it believes signals “the return of confidence to the London market”. The group continue to note sales prices as “firm” and cancelation rates at “normal levels”. Much like we have heard from peers, cost inflation has been an issue thus far in 2021. Berkeley is now seeing cost price inflation of the order of 4% since the start of 2021, broadly in line with what peers have noted.

Berkeley previously announced that it had £450m of surplus capital which it would either return to shareholders or use for land opportunities. The Group has this morning announced that £228m of this surplus capital would be returned to shareholders subject to approval at its AGM. The remaining £227m will be retained for allocation to incremental land investment over the course of the next 24 months. The group has also firmly committed to 50% increase in delivery over the business plan period (24/25). Whilst this is ahead of our expectations, the changing mix will ultimately leave our PBT forecasts broadly unchanged. Indeed the group remain committed to its medium-term guidance for a pre-tax ROE of at least 15% and a PBT of an average £500m per annum (until 2025).

Overall a solid update from Berkeley Group and the announcement of the excess This document is intended for the sole use of Goodbody Investment Banking and its affiliates capital return will be welcomed. We don’t envisage any material changes to profitability numbers on the back this morning update.

Home…

Page 3 23 Jun. 21 Goodbody Morning Wrap

Building Materials Further momentum in the recovery of US non-residential

The latest Architectural Billing Index (6-12 month leading indicator for the non-residential David O’Brien sector) from the American Institute of Architects shows further momentum in May with an +353-1-641 9230 overall score of 58.5 (April: 57.9, March: 55.6). In the release it is noted that demand for david.a.o’[email protected] design services continues to grow at a vigorous pace with the score for May one of the Robert Eason highest in the index’s 25-year history. The increase in May represents the fourth consecutive +353-1-641 9271 month of growth with the commentary very positive around the current strength. The level [email protected] of inquiries came in at 69.2 (April: 70.8, March: 66.9), while the level of design contracts continued its upward pattern with a score of 63.2, this follows on from a jump in April to Shane Carberry +353-1-6419118 61.7 from 55.7 in March. In the commentary attached to the release, it is noted that [email protected] “Despite ballooning costs for construction materials and delivery delays, design activity is

roaring back as more and more places reopen” while “concern over rising inflation and Dudley Shanley ongoing supply chain disruptions could dampen the emerging construction recovery”. +353-1-641 9174 [email protected]

Overall, the May ABI release highlights the continued momentum in the recovery of Kate McCarthy the US non-residential sector. However, there is some caution on rising input costs +353-1-641 9005 which we have been hearing across the peer group of our coverage. Today’s [email protected] release has a positive read across for CRH, HeidelbergCemtent, Kingspan, Tyman, Ferguson.

Home…

Draper Esprit Investment Update

Draper released an Investment Update this morning within which much of the headline detail Recommendation: Buy (investments in Ledger, Lyst, Cervest, Manna & FintechOS) had already been flagged in the Closing Price: £8.86 results statement on the 14th. That said, incremental points of note related to: (i) participation in a Series D round in core portfolio holding, Aircall; and (ii) confirmation that Gerry Hennigan +353-1-641 9274 the company has exited its holding in SportPursuit. [email protected]

With respect to Aircall, Draper has participated in a $120m Series D round that valued the

company at $1bn. Aircall, which is a cloud-based voice platform that integrates with popular productivity and helpdesk tools, has raised a total of $226m to date. With respect to the exit

in SportPursuit, Draper has realised a total of £22.8m relative to the £18.5m value attributed This document is intended for the sole use of Goodbody Investment Banking and its affiliates to the asset by Draper as of March 2021, and the £24.1m forecast value that we attributed to the asset by March 2022.

In total, Draper has outlaid £52m on seven transactions since March vs the £48m outlined in the FY21 results statement on the 14th of June and, as such, is well on track to meet and indeed exceed its guided investment spend for the year of £150m.

Home…

Page 4 23 Jun. 21 Goodbody Morning Wrap

tinyBuild Back catalogue performing well as group prepares for Hello Neighbor 2 launch

tinyBuild has released an update this morning that provided details on the performance of its Recommendation: Buy back catalogue and other titles. The statement notes that Secret Neighbor, a multiplayer Closing Price: £2.35 Hello Neighbor spin off, finished the week at the top of the Apple App Store charts, receiving 300k iOS downloads last weekend (19-20 June). Secret Neighbor was originally released on Patrick O'Donnell +353-1-641 6013 Steam back in 2019, but has been launched on various platforms this year, including PS4 [email protected] (April '21) and iOS. A Switch release is planned later in the year.

TBLD also updated on its wider back catalogue, which accounts for c.75% of tinyBuild’s game sales, noting that such downloads crossed 60m recently (20m in April). The Hello Neighbor franchise is also performing well, with more than 6m downloads of the Hello Neighbor 2 playable Alpha (2m in April). For context, the original Hello Neighbor title received just over 1m downloads, highlighting the level of excitement around the franchise.

Overall, this is a very strong update by tinyBuild. None of the figures are overly surprising and we have flagged similar trends in our Monthly Video Games Tracker. That said, it is still encouraging to see Hello Neighbor 2, tinyBuild’s flagship release, hit these levels. The group’s strong pipeline is a big part of our investment thesis, but its ability to monetise IP over a long window is also very encouraging, especially considering the tilt on its pipeline towards the back end of the year.

Home…

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

Page 5 23 Jun. 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 Bank of Ireland. 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, Total Produce and Yew Grove REIT in the past 12 months.

Goodbody Stockbrokers acts as corporate broker to AIB Group, 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 6 23 Jun. 21 Goodbody Morning Wrap

Other disclosures

We would like to inform you that Eamonn Hughes holds shares in AIB Group We would like to inform you that Dudley Shanley holds shares in CRH We would like to inform you that Robert Eason and Dudley Shanley hold shares in Kingspan

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. Goodbody Stockbrokers or GSI holds a proprietary position and/or controls, on a discretionary basis, more than 0.5% of the total issued share capital of Draper Esprit

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 This document is intended for the sole use of Goodbody Investment Banking and its affiliates 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 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 7 23 Jun. 21