Morning Wrap Today ’s Newsflow Equity Research 19 May 2020 08:48 GMT Upcoming Events Select headline to navigate to article Greencore Challenging H1 as COVID-19 took grip Company Events 19-May DCC; FY20 Results UDG Healthcare H1 in line, guidance remains withdrawn First Derivatives; FY20 Results UDG Healthcare; Q220 Results DCC FY20 Results – Focus on market opportunities 20-May Britvic; Q220 Results Great Portland Estates; FY2020 First Derivatives FY20 Results – Tata deal, amid 21-May Hilton Food Group; Q120 Trading Update lengthening sales cycles Wizz Air; FY20 Results 22-May Cranswick; FY results Irish Banks CSO survey highlights difficulties facing Greencore; H1 results enterprises in the lockdown 26-May ARYZTA; Q320 Results Economic View Franco/German debt mutualisation proposals a double-edged sword for Ireland Economic Events Ireland 22-May PPI Apr20 Wholesale Price Index Apr20 United Kingdom 19-May ILO Unemployment Rate Mar20 20-May CPI Apr20 PPI Apr20 Retail Price Index Apr20 21-May Retail Sales Apr20 CBI Industrials Trends Orders May20 United States Europe This document is intended for the sole use of Goodbody Stockbrokers 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 Greencore Challenging H1 as COVID-19 took grip Greencore has this morning reported H1’20 results with adjusted EBIT of £38.3m, down Recommendation: Buy c.14% yoy, primarily driven by the impact of COVID-19 in the final month of the quarter. Closing Price: £1.51 The company notes that following a significant impact in the first six weeks of H2’20, Group revenues are now c.40% below prior year levels on a pro-forma basis. Coupled with Jason Molins +353-1-641 9141 previously announced cost mitigation measures, the Group is now returning to modestly [email protected] positive EBITDA. Importantly, the balance sheet is in good shape, with £267.5m of available liquidity and confirmed eligibility for the CCFF programme. In addition, its banking covenants are being waived for the Sept 2020 and March 2021 test periods. As well as reiterating its previously announced decision to not proceed with an interim FY20 dividend, the Group announced that the final FY20 and interim FY21 dividends would also be cancelled. The key highlights from today’s update include: i) Food to Go (FTG) saw H1’20 pro-forma revenue declines of 2.1%, primarily due to the negative COVID-19 impact in the final two weeks of the quarter. Weekly demand had been down as much as 70% in the first six weeks of H2’20 and is now down c.60%; ii) Within the other convenience categories, pro-forma revenues increased by 4% with cooking sauces benefitting from strong demand in the final two weeks of the half. In the first six weeks of H2’20, revenues are running c.5% ahead of last year; and iii) Net debt (excl. IFRS16) came in a £311.1m resulting in Net Debt:EBITDA of 2.1x. As expected, FY20 guidance remains withdrawn. The Food to Go channel is likely to remain subdued for the remainder of FY20 as there is only a gradual easing in social restriction measures. Consequently, we expect to materially lower our FY20 forecasts. Home… This document is intended for the sole use of Goodbody Stockbrokers and its affiliates Page 2 19 May. 20 Goodbody Morning Wrap UDG Healthcare H1 in line, guidance remains withdrawn Having withdrawn guidance for the year to September in the Trading Update on April 15th, Recommendation: Buy that remains the case as outlined in the Interim Results statement from UDG this morning, a Closing Price: £6.24 stance that is hardly surprising given the ongoing uncertainty surrounding the timing and economic impact of the pandemic. Entering 2020 the expectation was for cc diluted adj. Gerry Hennigan +353-1-641 9274 earnings growth in the range of 7% - 9% for the year to September, relative to FY19 [email protected] earnings of 47.3c under IFRS 15 & 16. Events subsequently, led us to reduce our FY20 adj. EPS forecast by 14% to 43.5c, implying a YoY decline of 8% in our report issued on May 7th (‘Resetting the FY20 ‘bar’ to reflect the COVID-19 backdrop), a projection that we maintain. In terms of H1, UDG reported adj. EBITA of $81.3m, relative to our projection of $79.3m, resulting in cc adjusted diluted EPS of 22.0c (+16% on a cc basis), directly in line with the estimate in our model of 22.1c. Relative to a medium-term EBITA growth target of 5% - 10%, Ashfield delivered 5% underlying growth, driven, as expected, by Communications & Advisory (+8x% YoY underlying), compared to an EBITA outturn for Commercial & Clinical in line with the previous year. On the packaging side, Sharp maintained recent momentum delivering YoY underlying growth in operating profit of 24%. Within Sharp UDG also added incremental capacity of the order of 15% when it acquired a packaging facility in May close to its Allentown, Pennsylvania base at a cost of just $5m. As previously stated in the April Trading Update, the interim dividend has been suspended. With respect to the balance sheet, net debt stood at $58m in September (Net Debt / EBITDA of 0.3x) compared to our expectation of $83m, the outturn benefiting from a c.$20m working capital inflow, which, while expected to unwind in H2, points to the previously guided normalised cash conversion ratio improving from 60% - 65% to a range of 65% - 70%. Having already outlined available credit in excess of $200m, funding, even in a protracted downturn, would appear to be ample, amid a series of previously outlined initiatives aimed at mitigating the cost base. With H1 results in line, and clarity on the outcome of the year awaiting greater stability in the regions of interest (US and Continental Europe), we believe UDG will continue to trade within its recent range. That said, sector exposure, particularly to the biotech industry, which is more likely to avail of the outsourced services provided by service companies such as UDG, allied to the strength of its packaging business in the US, would suggest a return to growth as and when economic activity re-emerges. This document is intended for the sole use of Goodbody Stockbrokers and its affiliates Home… Page 3 19 May. 20 Goodbody Morning Wrap DCC FY20 Results – Focus on market opportunities Amid typically limited explicit guidance for the year ahead, and an FY20 (March) outturn Recommendation: Buy marginally ahead of our expectations, the market focus in the results statement from DCC Closing Price: £59.84 this morning, in our view, will be on commentary regarding divisional performance since March and the opportunity set for a company positioned to avail of such opportunities. Gerry Hennigan +353-1-641 9274 Specific points of note in that regard include: (i) the strength of the energy portfolio exiting [email protected] FY20; (ii) confirmation of balance sheet strength (cash resources of c.£1.5bn); and (v) commentary around the M&A opportunity that may unfold as the economic reality of the pandemic beds in. All are likely to be topics of discussion in the post results conference call scheduled for 9am this morning (+44-207-1928338, Passcode 4087851). In terms of the outturn to March, commentary in February that the Group’s operating profit is expected “to be in line with current market consensus assuming normal weather conditions for the balance of the financial year” proved accurate relative to an unchanged FY20 EBITA projection of £487m in our model. A full year dividend of 145p (+5% YoY) has been recommended, thus maintaining a track record of growth dating back over two decades, a reflection both of surplus funds (Net Debt / EBITDA of 0.1x) and implicit confidence in the outlook for the year. At a divisional level, despite generally mild weather conditions during the winter months and the onset of lock-downs in Europe on traffic and thus Retail volumes, Energy accounted for 75% of reported group operating profit (£368.5m, +10% YoY). Healthcare (12% of Group EBITA), reported operating profit of £60.5m, relative to our forecast of £66m, ‘flat YoY, but up 8.6% on an underlying growth allowing for disposals, a backdrop, which, in our view, should benefit from the pandemic. Lastly, an EBITA outturn of £65.3m relative to our £76m projection in Technology points to YoY growth of 1%, amid expectations that corporate and consumer demand to enable remote working should provide a tailwind for Q1’21. While incremental news in terms of M&A is limited, we believe an historically disciplined approach to dealflow may prove fruitful should opportunities unfold for DCC as expected, amid commentary in the outlook statement of such opportunities in the US. In the absence of explicit guidance, we maintain our FY21 estimates as outlined in our recent report (‘How bad can it get’) and a positive stance, which we view as underpinned by commentary on the respective divisions and a c.65% - 70% EBITA bias towards H2. This document is intended for the sole use of Goodbody Stockbrokers and its affiliates Home… Page 4 19 May.