Morning Wrap

Today ’s Newsflow Equity Research 01 Mar 2021 08:36 GMT Upcoming Events Select headline to navigate to article

Bank of Ireland FY20 First Glance - Better on revenue and Company Events impairments 01-Mar ; FY20 Results Bunzl; FY20 Results Bunzl - More optimistic tone in FY20 outlook Greencoat Renewables; FY20 Results 02-Mar ; FY Results Greencoat Renewables FY20 In-line ; FY20 results Supermarket Income REIT; HY Results UK Housebuilders 95% LTV mortgage scheme to be Travis Perkins; FY20 results 04-Mar Entain; FY20 Results announced in the Budget Irish Economic View AIB Manufacturing PMI points to continued optimism among industry UK Economic View A “Spend & Pay Later” Budget OneSavings Bank Announces acquisition of £55m mortgage portfolio

Economic Events Ireland 01-Mar Retail Sales Jan21 03-Mar ILO Unemployment Rate Feb21 05-Mar Foreign Direct Investment Q4 08-Mar GDP Q4 Industrial Production Jan21

United Kingdom 01-Mar BoE Mortgage Approvals Jan21 CIPS Manufacturing PMI Feb21 03-Mar CIPS Services PMI Feb21 04-Mar CIPS Constuction PMI Feb21

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

Bank of Ireland FY20 First Glance - Better on revenue and impairments

BOI published FY20 results with a pre-exceptional pretax loss of €374m versus our €643m Recommendation: Buy loss estimate. Income was 4% better (NII 2% better, Non-interest 17%). The loan book Closing Price: €3.38 looks stable in H2 and the Q4 exit NIM was flat on Q3. Costs were 2% higher than us, but in line with consensus. Impairments of €1.13bn were well below our €1.32bn forecast (NPEs Eamonn Hughes +353-1-641 9442 flat in H2). CET1 of 13.4% was in line (13.3% f/cast). BOI guides FY21 revenue in line with [email protected] 2020 levels (lower NII, higher non-interest income); Costs <€1.65bn in 2021 and a new FY23 target of €1.5bn; Impairments to be materially lower than FY20 (doesn’t feel to be

“normalised” just yet). The FY21 CET1 ratio to be in line with FY20 plus distributions to recommence on “a prudent and progressive basis”, which we interpret as FY results. New medium targets for FY21-24 are due later this year.

These are a good set of numbers with a 12% beat at the pre-provision level (though some valuation items). Looking at guidance, it feels to us that FY21 consensus pre-provision profit has a c.5% upside (we already c.3% ahead of consensus), or 8-9% at the pre-tax level. Its early in the year and in extended lockdowns, but momentum is good, benefits from UB’s phased exit will likely accrue, so the risk bias to us remains positive.

Home…

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

Page 2 01 Mar. 21 Goodbody Morning Wrap

Bunzl - More optimistic tone in FY20 outlook

Having guided in the pre-close statement in December, YoY revenue growth of c.8% (+9% Recommendation: Buy on a constant currency basis) and Group operating margin above the historic norm (c.7%) Closing Price: £22.37 due to the mix of products sold, Bunzl delivered on that it its FY20 release this morning reported revenue of £10.1bn, adj. EBITA of £778m and adj. EPS of 164.9p. That compares to Gerry Hennigan +353-1-641 9274 our estimates of £10.0bn in sales, EBITA of £762m and adj. EPS of 155.5p, all of which are [email protected] in line with consensus. Regionally, as was the case at interims, revenue from Continental Europe (+15.6% YoY) and the RoW (+21.6% YoY) outperformed, a function of greater

exposure to those sectors (Safety, Cleaning & Hygiene & Healthcare) that benefited from COVID-related demand. Headline results aside, points of note, in our view, relate to: (i) the ongoing disparity between those sectors that benefit from COVID related demand, from those that don’t; (ii) the announcement of three further acquisitions since the beginning of the year; and (iv) the outlook commentary for the year ahead.

In the outlook commentary, a note a more positive tone, as opposed to caution in prior statements on the year ahead reflected in “we anticipate that the recovery in sales of other products, as restrictions ease, will broadly offset the decline of smaller Covid-19 related orders, with recent acquisitions making an increasing contribution to the Group's performance. Looking ahead, we also expect future growth to be supported by enhanced hygiene trends and our differentiated offering of sustainable and responsible solutions.” As such, despite the lingering impact of the pandemic, and slow rate of vaccination (ex-UK) points, we believe there is an upside bias to consensus FY21 EBITA estimates of £682m (GBS £685m).

On dealflow, three further complementary acquisitions were announced today; amid commentary of an “active pipeline”. In January, the Company acquired Deliver Net, a healthcare distributor to care home groups in the UK, with 2020 revenue of £20m. In February, Bunzl completed the acquisition of Disposable Discounter, an online distributor of foodservice disposable products, which generated £18m of revenue in 2020, as well as the acquisition of Pinnacle, a leading distributor of cleaning & hygiene in Canada, which generated £11m of revenue in 2020. Net Debt (ex. Leases) stood at 1,255m or £1,753m (including leases), relative to an expectation in our model £1,844m (incl. leases, Net Debt / EBITDA of 1.5x). A total dividend for the year of 55.1p was been proposed vs out expectation of 52.6p.

With results marginally ahead of market expectations, as outlined in our preview

note last week, we anticipate a focus in the schedule conference call (+44-203- This document is intended for the sole use of Goodbody Investment Banking and its affiliates 936-2999) at 9.30am to be on: (i) the stated prospects for both COVID and non- COVID related demand for the months ahead; and (ii) the development pipeline.

Home…

Page 3 01 Mar. 21 Goodbody Morning Wrap

Greencoat Renewables FY20 In-line

Greencoat Renewables, as expected, reported a NAV per share to 101c, a fall of c.3c from Recommendation: Hold the 103.1c recorded at the end of the prior year. As expected, grid curtailment, a feature Closing Price: €1.17 over the past two years continues to constrain annual output, a development, which, in our view, may well persist as more renewables come on stream to meet stated Government Gerry Hennigan +353-1-641 9274 environmental objectives. That backdrop is reflected in a target migration to derive 70% of [email protected] electricity supply in RoI from renewables by 2030, which would entail an effective doubling of electricity generated from onshore wind from c.4MW in 2019 to c.8MW by 2030.

NAV aside, confirmation in the statement this morning is provided on portfolio additions - 37.8MW from the addition of Cloghan in County Offaly, 25.2MW from Taghart in County Cavan, 89.6MW from Cordal in County Kerry and GRP’s first venture into Scandinavia via an agreement to procure the Kokkoneva wind farm (43.2MW) in Finland. In line with expectations, the Debt to GAV ratio stood at 36% at the end of the period, well within the stated ceiling of 60%. Having raised €125m gross in the Placing in December, further deal flow both onshore Ireland and on the Continent is likely.

Quarterly dividend payments, in line with an annual 6.1c target, have been announced. With future dividend payments underpinned by price protection under the c.9 years REFIT policy, serving to insulate the group from wholesale electricity price fluctuation and decline, an obvious attraction remains near-term confidence over the 5% dividend yield. We would add that a desire for regional diversity and the certainty provided by fixed-price PPA agreements, as in the case of the 10-year fixed-price Corporate PPA with Gasum, Finland’s state-owned gas utility, are, in our view, likely to feature more prominently. Evidence of M&A pipeline potential is reflected in commentary on the attractions of the Irish market, but also that “Europe represents a substantial opportunity for the Group”. In addition, the Group also publish its third annual ESG report.

With limited incremental news in the release from Greencoat this morning bar potential expansion regionally, we retain our PT of €1.19 based on a 10% premium to our projected NAV (includes annual dividend payment) and our Hold recommendation. here

Home…

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

Page 4 01 Mar. 21 Goodbody Morning Wrap

UK Housebuilders 95% LTV mortgage scheme to be announced in the Budget

Press reports over the weekend indicated that a new 95% LTV mortgage guarantee scheme Shane Carberry will be announced as part of the UK budget on Wednesday. Following the onset of the COVID +353-1-6419118 pandemic, lenders pulled away from offering higher LTV mortgage products. Some have [email protected] returned to 90% LTV’s and rates on those products have been becoming more competitive Dudley Shanley recently, but eligibility criteria are still quite strict and there are no mortgage offers at 95% +353-1-641 9174 LTV. [email protected]

Under the new scheme, the UK Treasury will charge a fee to guarantee part of the loan in David O’Brien +353-1-641 9230 order to encourage banks to offer higher LTV mortgages on properties up to £600k. The david.a.o’[email protected] scheme is expected to start in April and banks are expected to have capacity to lend to

c.3,000 borrowers a month. This new scheme would run alongside the current Help to Buy Robert Eason equity loan scheme. +353-1-641 9271 [email protected] We will have an opportunity to hear from Taylor Wimpey (2nd), Persimmon (3rd) and Vistry Group (re-scheduled to the 4th) this week and we will hopefully get their opinion on how this new scheme could potentially impact their business. Previews into those three sets of results can be sent on request.

Should this scheme be introduced it will once again highlight the current UK Government’s support for the UK housing market. Despite a robust demand backdrop, low levels of supply and Government support, the UK housebuilders continue to trade at attractive valuations as investors seem to be concerned about the impact the removal of Government support at some stage in the future and the longer lasting impact of higher unemployment on activity and prices in the UK housing market.

Home…

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

Page 5 01 Mar. 21 Goodbody Morning Wrap

Irish Economic View AIB Manufacturing PMI points to continued optimism among industry

The AIB Manufacturing PMI came in at 52.0 in February, a minor increase from the 51.8 Shaun McDonnell recorded in January, with the narrative being similar to that in January. There has been a +353-1-641 9127 [email protected] continuation of supply chain pressures, partly due to Brexit-related issues. There was declines in output and new orders but a rise in optimism about the future, reflected in increases in employment and business sentiment.

On the supply-chain side, there was an acceleration of the rate of decline in the output index to the fastest seen since May 2020 while there was a slowdown in the rate of decline in both the new orders and new export orders indices, albeit there was a still a contraction in new business for the second successive month. Additionally, the supplier’s delivery time index remained at the joint second lowest on record in February (c.25.0), attributed mostly to Brexit effects, while COVID-19 disruption and container shortages were also mentioned as drivers. Somewhat paradoxically, this factor has a positive impact on the headline index.

The employment index demonstrated an increase in jobs added by manufacturing firms for a fifth successive month, with February’s rate of growth accelerating from January levels to almost match December’s peak (c.53.0). The trend being seen in employment is due to the anticipation of recovery in demand in the second half of the year. Additionally, the future output index, a gauge for the 12-month business outlook, fell to its second highest level since January 2020 (2nd only to January 2021).

All in all, the message from this morning’s release is much the same as in January, with reason for optimism on the demand-side according to Irish manufacturing companies. Whilst we agree that a recovery in demand remains highly likely for H22021, the severity of this lies heavily on the success of the vaccine-rollout, both in Ireland and abroad.

Home…

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

Page 6 01 Mar. 21 Goodbody Morning Wrap

UK Economic View A “Spend & Pay Later” Budget

With most of the details having leaked out already ahead of Wednesday’s official Dermot O’Leary announcement, the UK Budget is shaping up to be what one may describe as “spend and pay +353-1-641 9167 [email protected] later”. While coronavirus supports will be extended in line with the ongoing restrictions, Chancellor Rishi Sunak looks intent on burnishing his conservative credentials by announcing several revenue-raising measures that will kick in as the economy reopens.

The scale of the fiscal hole that needs to be plugged is still up for debate. As the coronavirus supports come to an end, there will immediately be a substantial fall in the deficit. However, a structural deficit will remain. In November, the OBR estimated that this gap would be £29bn at the end of this Parliament. A figure as large as £40bn has been mooted recently, but it is unlikely to be as large as that given the likely faster growth as a result of the fast vaccine rollout. The FT reports this morning that the OBR will raise its economic growth forecast this week and estimate that the UK economy will return to its 2019 size in early 2022. Despite this tailwind, big decisions on revenue-raising will have to be made. The headline-grabber will be the expected increase in the corporation tax rate, where a signal to increase it gradually over the coming years is expected on Wednesday. A move to 25% (from 19% currently) has been speculated. There is also expected to be stealth increases in income tax as bands are left unchanged in the coming years. Changes to pension relief are also possible.

To sweeten the pill, spending commitments will be a combination of post-pandemic support for businesses (restart grants, extension of furlough scheme, revival of “Eat Out to Help Out” scheme) and a new mortgage guarantee scheme for First- time Buyers. Sunak is taking a calculated gamble of announcing an end to this extraordinary period of fiscal largesse for which he has received high acclaim over the past twelve months.

Home…

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

Page 7 01 Mar. 21 Goodbody Morning Wrap

OneSavings Bank Announces acquisition of £55m mortgage portfolio

OneSavings Bank (OSB) announced after the close on Friday that it has completed the Recommendation: Buy acquisition of a c.£55m portfolio of UK residential mortgages from Arbuthnot Banking Group Closing Price: £4.44 (ARBB). The portfolio was already serviced by Exact, OSB’s in-house servicer (which was originally part of the Charter Court business, which OSB acquired) and was acquired at a John Cronin +353-1-641 9187 discount to gross loan value. The OSB statement doesn’t say much on the deal but we get a [email protected] bit more detail on the portfolio from the ARBB RNS (also published on Friday evening), which flags that: i) the portfolio consists of loan balances that were acquired by ARBB from the

administrators of Dunfermline Building Society (Scotland) in 2014 (so, likely to be fairly well- seasoned at this juncture); ii) gross loans stood at £54.9m at 31st January 2021 and the blended yield on the portfolio was 2.95% at that date; iii) the portfolio was acquired by OSB at a 2.1% discount to book value (purchase consideration was £53.8m); iv) the economic benefits attached to the portfolio transfer to OSB with effect from 1st February 2021 (so we will bake in 11 months of income on this portfolio into our FY20 revenue forecasts) and legal title will pass to OSB approximately three months post-completion.

The acquisition represents a small bolt-on and is not something that will move the dial in the context of OSB’s reported net loans position of £18.7bn (underlying) at 30th September 2020. The average asset yield on the portfolio is considerably lower than the average asset yield on OSB’s existing mortgage portfolios (c.450bps territory) but it must be borne in mind that this portfolio is likely to be fairly well- seasoned (and low LTV) meaning that any ensuing NIM dilution should be compensated for in the form of lower TTC impairment charges relative to the rest of the book and our suspicion is that the deal will be (marginally) RoTE-accretive over time. Interestingly, one would be forgiven for speculating that we could potentially see OSB participate in more of these opportunistic deals in a bid to drive average portfolio LTVs down materially (we would need to see much bigger deals, of course – which isn’t out of the question given OSB capitalisation, etc.) in advance of the introduction of output floors in 2023 (as a safeguard against RWA density inflation in the event that OSB does not secure IRB accreditation ahead of January 2023 – and, indeed, as such loan product should present highly compelling returns, irrespective of NIM dilution consequences, if and when OSB attains IRB accreditation for its mortgage portfolio).

Home…

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

Page 8 01 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 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, , , Bank of Ireland, , Collagen Solutions, Datalex, Draper Esprit, FBD Holdings, First Derivatives, Grafton Group, Greencore, Hammerson, Harworth, Hibernia REIT, ICG, Kingspan, , Playtech, Rank Group, Supermarket Income REIT, 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 01 Mar. 21 Goodbody Morning Wrap

Other disclosures

We would like to inform you that Dudley Shanley holds shares in Cairn Homes We would like to inform you that Dudley Shanley holds shares in Glenveagh Properties

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 This document is intended for the sole use of Goodbody Investment Banking and its affiliates 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 10 01 Mar. 21