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UDG Healthcare Disposal of the Distribution Business to Provide Firepower for Next Leg of Growth

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UDG Healthcare Disposal of the Distribution Business to Provide Firepower for Next Leg of Growth Morning Wrap Today ’s Newsflow Equity Research 21 Sep 2015 Upcoming Events Select headline to navigate to article Playtech Plus500 acquisition sees short term delay Company Events 23-Sep Origin Enterprises; Q4 2015 Results 28-Sep ARYZTA; Q4 2015 Results UDG Healthcare Disposal of the Distribution business to provide firepower for next leg of growth Economic View Political risks reduced after clear Greek election results FBD Holdings Zurich and RSA merger talks terminated Economic Events Ireland United Kingdom 24-Sep BBA Loans for House Purchase United States 23-Sep US Manufacturing PMI 24-Sep Durable Goods Orders New Home Sales 25-Sep GDP Annualized QoQ Core PCE QoQ US Composite PMI U. of Michigan Sentiment Europe 23-Sep Eurozone Manufacturing PMI Eurozone Services PMI Goodbody Capital Markets Equity Research +353 1 6419221 Equity Sales +353 1 6670222 Bloomberg GDSE<GO> Goodbody Stockbrokers (trading as Goodbody) is regulated by the Central Bank of Ireland. For the attention of US clients of Goodbody Securities Inc, this third-party research report has been produced by our affiliate Goodbody Stockbrokers. Please see the end of this report for analyst certifications and other important disclosures. Goodbody Morning Wrap Playtech Plus500 acquisition sees short term delay Playtech announced on Friday evening that the receipt of all regulatory approvals in relation Recommendation: Buy to its acquisition of Plus500 is taking longer than originally anticipated. This has come as a Closing Price: £8.58 result of the high profile nature of the Plus500 acquisition. The group now expects the acquisition to be completed by the end of November 2015, but remains hopeful of an Gavin Kelleher +353-1-641 0423 October completion (it notes this is still within the relevant regulatory and statutory [email protected] timetables). Playtech states that its board is not aware of any issues which would give rise to the required regulatory approvals not being granted in due course. It has already received approval from the Cyprus Securities and Exchange Commission. In terms of the group’s acquisition of Ava Trade, the group expects this to complete around the end of September 2015, broadly in line with its prior expectation. The news that the Plus500 deal is seeing some regulatory delays could cause some concern. However, Playtech appears confident the deal will still go through in Q4. The deal has already received Cypriot regulatory approval so the delay would appear to be related to the FCA approval in the UK. Our forecasts include the acquisition of Plus500 from October 1st 2015 onwards so there is risk of this slipping slightly. Home… Page 2 21 Sep. 15 Goodbody Morning Wrap UDG Healthcare Disposal of the Distribution business to provide firepower for next leg of growth On Friday UDG Healthcare announced the disposal of its Distribution business to McKesson Recommendation: Buy for a gross consideration of €407.5m which represents a 13.4x EV/EBITA multiple (€30m of Closing Price: £5.41 EBITA disposed, representing c.25% of group profits). As part of the transaction UDG will David O'Brien dispose of the Irish United Drug business, the Sangers business in Northern Ireland and the +353-1-641 9230 Masta business in the UK. This follows the disposal of the UniDrug business last year and is david.a.o'[email protected] very much in line with management’s outlined strategy. The Aquilant business, while part of the Supply Chain Service division, will remain with UDG. The disposal allows UDG to focus on the higher growth businesses of Ashfield (growing at 9% in H115) and Sharp Packaging (growing 30% in H115). Indeed, the net proceeds of the deal will see UDG’s forecast leverage move from 1.8x EBITDA to a net cash position of c.€100m. With no mention of cash returns, it is clear management will be using the capital to grow the core Ashfield and Packaging businesses further through acquisition / capex. The margin and returns profile of the Group will significantly improve with the former increasing from 5% to 11%. Following 15 years as CEO Liam Fitzgerald is retiring from UDG with current COO Brendan McAtamney taking over. Mr FitzGerald has overseen a period of immense transformation in UDG from a 100% Irish focused business to an almost 100% international business that is underpinned by attractive structural growth pillars. In our view this appears to be a very attractive deal for UDG, which alongside the clear financial benefits, will allow management to focus 100% on the core growth businesses going forward. The strong financial position will provide firepower to fund the next leg of growth for UDG. We reiterate our BUY recommendation. Home… Page 3 21 Sep. 15 Goodbody Morning Wrap Economic View Political risks reduced after clear Greek election results European policymakers will be breathing a sigh of relief this morning following the results of Dermot O’Leary +353-1-641 9167 the latest Greek general election. Alexis Tsipras’ decision to call a snap election looks to have [email protected] paid off, with his Syriza party winning 35.5% of the votes, with the nearest challenger – New Democracy – on 28.1%. Adding on the bonus seats for being the largest party, this translates into 145 seats. A coalition with the centre-right Independent Greeks (10 seats) was announced last night. While a parliamentary majority of five is small, Tsipras has managed to rid his party of the more hardliner, anti-bailout faction of his party. Those dissidents failed to reach the 3% threshold required for making it into the Greek parliament. The vote gives Tsipras an important mandate to continue with the programme agreed with European creditors back in July, the decision that ultimately triggered these fresh set of elections. The first job of the new government will be to vote through prior actions for the latest tranche of the bailout funds. Markets should also welcome this latest result in Greece. Greece was exceptionally close to leaving/getting kicked out of the single currency just two months ago. Now it appears that the spectre of Greek political concerns may fade as an issue for markets. Politics, though, will certainly not fade as an issue, with the Portuguese, Spanish and Irish general elections all due to take place over the coming months. Home… FBD Holdings Zurich and RSA merger talks terminated Zurich and RSA have provided trading updates this morning and also announced that they Recommendation: Restricted are not proceeding with their proposed merger. Zurich has indicated that it is expected to Closing Price: €7.05 incur losses from the Tianjin port explosion plus it also expects weaker than anticipated Eamonn Hughes trading in its General Insurance business to continue into Q3. In light of the recent +353-1-641 9442 deterioration in trading performance, it is terminating discussions with RSA, which itself flags [email protected] that trading for July and August has been ahead of expectations. The proposed merger of Zurich and RSA would have brought together the 6th largest insurer in Ireland (Zurich) with the joint largest (RSA), creating a clear market leader, with market share in the high-20s. Failure to consummate a marriage now leaves them to their own devices and plays down the M&A angle in Ireland for the time being. If either of them are to get involved in M&A in the future, it is more than likely going to be RSA, particularly since it looks like Zurich first has a few things to sort out in its own business. Home… Page 4 21 Sep. 15 Goodbody Morning Wrap Market Data Top 10 Covered Companies Company Price Mkt Cap Absolute Relative to European Sector P/E (LC) (LCM) 1 Day 1 Week 1 Mth Ytd 1 Day 1 Week 1 Mth Ytd 2015f 2016f AIB Group 0.08 40,833 - 2.6 -9.4 -1.3 1.8 2.9 -0.9 -4.7 25.3 28.4 CRH 25.75 21,003 -1.6 -1.4 -7.6 29.4 0.1 -1.1 1.1 24.9 23.0 14.1 Ryanair 13.55 18,759 0.3 -0.5 5.2 38.2 2.2 -0.2 15.1 33.4 13.1 15.1 IAG 6.01 12,207 -0.6 2.9 9.2 23.5 1.2 3.2 19.4 19.3 11.6 8.2 Wolseley 41.36 10,756 -1.8 -1.5 -4.5 12.2 -0.1 -0.8 0.9 15.2 17.2 15.7 Kerry Group 65.79 11,566 -1.0 3.1 -5.4 15.3 0.8 3.4 3.5 11.3 22.0 20.1 Bank of Ireland 0.34 11,108 -2.0 -2.0 -5.5 9.6 -0.2 -1.7 3.4 5.8 10.8 11.2 easyJet 17.43 6,867 -0.7 -1.0 -0.1 4.3 0.9 -0.3 5.6 7.1 12.5 11.8 Mondi 13.80 6,701 -2.0 -5.9 -11.4 31.4 -0.2 -5.7 -3.0 26.9 14.4 13.7 Travis Perkins 20.31 5,017 -0.8 0.1 -3.4 9.4 0.9 0.8 2.1 12.3 16.1 13.7 Indices ISEQ performance % Price 1 Day 1 Week 1 Mth Ytd 7,000 ISEQ 6,467.17 -0.79 0.30 -1.83 23.78 6,500 FTSE 100 6,104.11 -1.34 -0.22 -6.47 -7.04 6,000 DAX 30 9,916.16 -3.06 -2.05 -9.16 1.13 CAC 40 4,535.85 -2.56 -0.28 -8.76 6.16 5,500 FTSE Eurofirst 300 1,397.57 -1.90 -0.25 -8.98 2.12 5,000 Nasdaq 4,827.23 -1.36 0.10 -4.59 1.93 4,500 S&P 500 1,958.03 -1.62 -0.15 -6.62 -4.90 Dow Jones 16,384.58 -1.74 -0.30 -6.43 -8.07 4,000 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Nikkei 225 18,070.21 -1.96 -1.06 -12.09 3.55 Exchange Rates Current Px 1 day Px 1 Week Px Dec14 Avg Ytd Stg/€ 0.730 0.729 0.733 0.776 0.728 STOXX 600 performance US$/€ 1.138 1.132 1.129 1.210 1.115 CHF/€ 1.093 1.097 1.101 1.202 1.062 420 JPY/€ 136.473 136.822 136.116 145.079 134.819 400 Bonds 380 Yield 1 Day Yld 1 Wk Yld 1 Mth Yld 3 Mth 360 US 2 Yr 0.68 0.00 0.68 -0.04 0.04 340 US 10 Yr 2.13 -0.05 -0.06 -0.06 -0.20 320 UK 2 Yr 0.60 -0.09 0.01 -0.14 -0.11 300 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 UK 10 Yr 1.72 -0.12 0.01 -0.17 -0.33 BD 2 Yr -0.25 -0.04 0.01 -0.25 -0.05 BD 10 Yr 0.66 -0.12 0.01 0.66 -0.14 Irish 10 Yr 1.25 -0.12 -0.01 0.01 -0.40 Commodities FTSE 250 performance % Current 1 day 5 day 1 Mth 1 Yr 18,500 Brent (ICE $/bbl) 47.47 -3.28 -1.39 -2.75 -51.41 18,000 Gasoline (NYM $/Gal) 1.36 -1.44 -1.00 -17.65 -47.04 17,500 Heat Oil (NYM $/Gal) 1.49 -2.55 -3.83 -4.36 -45.04 17,000 Nat.Gas 2.61 -1.77 -3.27 -3.66 -33.38 16,500 16,000 Gold $/oz 1,141.50 2.15 3.65 2.70 -6.47 15,500 Silver $/ozt 15.26 3.39 4.66 0.20 -17.51 15,000 Copper U$/MT 5,358.00 -0.20 0.11 7.15 -22.57 14,500 Wheat $/BU 4.87 1.09 0.36 -2.41 -0.36 14,000 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Source : FactSet Page 5 21 Sep.
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