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Today ’s Newsflow Equity Research 15 Oct 2020 08:37 BST Upcoming Events Select headline to navigate to article
Mondi Q320 – Broadly in line Company Events 15-Oct Domino's Pizza Group; Q320 Trading Update Ryanair Further capacity cuts into the winter season Harworth Group; Ex Div Hays; Q121 Trading Update Hammerson Rent collection improves in Q4 Mondi; Q320 Trading Update Secure Trust Bank; Q320 Trading Update Supermarket Income REIT Rent collection continues as 20-Oct Bellway; FY20 Results normal Gamesys Group; Q320 Trading Update 21-Oct C & C Group; Q221 Results Economic View Rising cases triggering more restrictions Grupo Bimbo; Q320 Results across Europe SEGRO; Q320 Trading Update 22-Oct Travis Perkins; Q3 results
Builders Merchants Mixed messages from Dunelm and Norcros CPL Resources Challenging backdrop as expected from UK peers PageGroup and Hays
Economic Events Ireland
United Kingdom
United States
Europe
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Mondi Q320 – Broadly in line
Mondi has reported Q320 group EBITDA of €306m representing a yoy decline of 22% and Recommendation: Hold compares to our forecast of €299m (note maintenance cost came in €15m lower than we Closing Price: £16.68 forecast). This compares to -17% yoy in Q220 and -18% yoy in Q120. Management notes David O'Brien that good demand in corrugated solutions and bags, has been offset by: i) lower UFP +353-1-641 9230 volumes yoy (sequentially improved); ii) destocking in Consumer Flexible’s; and iii) david.a.o'[email protected] challenging conditions for the Engineered Materials business.
The key takeaways are: (i) In Corrugated Solution, ecommerce demand and consumer application remained strong with recovery off the lows in industrial end markets leading to yoy growth in volumes and discussion of price increases; (ii) In Flexible Packaging the bags business seen yoy growth but the Consumer Flexibles business experienced de-stocking during the quarter; (iii) Engineered Materials continued to see challenging conditions with lower volumes for personal care goods and negative impact of lockdown on industrial and specialised products; (iv) As expected, UFP volumes improved sequentially from Q220 but remain down yoy with the South African operations impacted by strikes.
On first glance we will make minor downward revisions to forecasts for FY20 and FY21 forecasts which leaves the stock trading on c.8.5x EV/EBITDA underpinning our view that there will be a better entry point for the stock.
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Ryanair Further capacity cuts into the winter season
Following on from a range of forecast cuts by other airlines into the winter season, Ryanair Recommendation: Hold has announced that it plans to cut its winter capacity from 60% of last year’s level to 40%. Closing Price: €12.32 This is targeted at flying load factors of 70% and therefore cash positive contributions from Mark Simpson the services run. +353-1-641 0478
[email protected] Ryanair now forecasts full year (FY21) traffic to fall to ~38m guests, down from the last change just over a month ago, when the forecast was cut to 50m pax (as adopted in our last published forecasts).
This highlights the rapid deterioration of demand into the winter period and the need for the This document is intended for the sole use of Goodbody Investment Banking and its affiliates market to bring forecasts down again. On a prorate basis for PAT the change is not a huge adjustment, bearing in mind that this is usually a loss making period for the airline, with our PAT moving from a loss of €587m to ~€654m given the change in pax numbers.
In the exercise of adjusting the overall sector’s forecasts down, cash burn issues will again be a focus, although in Ryanair’s case the market is comfortable that its recent rights and bond issues have underpinned the business through even the harshest of winters.
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Hammerson Rent collection improves in Q4
Hammerson (HMSO:LN) updated this morning on rent collection performance across its Recommendation: Buy shopping centre and retail park portfolios for the final quarter of 2020 noting that at a group Closing Price: £0.18 level it has now collected 41% of rent due, with the UK collecting 38%, Ireland 33%, and Colm Lauder France 51%. As of the 14th October, all of HMSO’s destinations are open, with 94% of the +353-1-641 6042 tenants permitted to trade by the relevant local Governments in UK and Ireland open, and [email protected] over 99% in France.
The Q4 rent collection performance is noted as being higher than at the equivalent point in Q3 and that discussions regarding rental arrears from previous quarters (including Q2) are ongoing and HMSO expect collection rates to continue to improve. This is evident in the updated data for Q2 and Q3 which shows rent collection rates up to 59% for both quarters, a considerable step up from the 37% collected in Q2 initially and 16% collected in Q3. On an overall basis, aligning with reporting periods, HMSO has now collected 79% of rents due for H1 (June-end) and 66% of rents due for FY20.
Finally, HMSO have confirmed it has received approval for the disposal of the VIA Outlets to APG for £274m meaning the transaction is on track to complete before year end.
HMSO’s improved rent collection rates provide some additional clarity on earnings expectations for the fiscal year end (December), but our FY forecasts are still assuming gross rent will be a quarter below billed for the year.
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Supermarket Income REIT Rent collection continues as normal
In a short update this morning, SUPR confirmed that it has collected 100% of rent due for Recommendation: Buy the September quarter (Q4). SUPR has now received all its contracted rent to date in 2020. Closing Price: £1.06
Elsewhere in the market, it is interesting to note that LondonMetric (LMP:LN) sold two Colm Lauder +353-1-641 6042 supermarket assets (albeit smaller Marks & Spencer food stores with a WAULT of 15 years) [email protected] at a net initial yield of 4.0% to a local authority, as announced on Thursday. This is healthy pricing evidence for SUPR.
The challenges faced across the domestic economy because of COVID-19 have
highlighted the benefits of SUPR’s inflation-protected, secure income from This document is intended for the sole use of Goodbody Investment Banking and its affiliates essential retailers. Unlike most property companies, we have made no downward adjustments to our earnings estimates for SUPR as a result of COVID-19.
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Economic View Rising cases triggering more restrictions across Europe
A second wave of restrictions on movement and social contact is now in full swing across Dermot O’Leary Europe. Germany increased restrictions on social contacts and introduced a curfew for bars +353-1-641 9167 [email protected] and restaurants in certain areas. In France, a 9pm-6am curfew has been introduced for a period of four weeks in nine urban centres. Portugal has re-entered a "state of calamity", limited social contacts and has made mask compulsory in all public spaces. The UK Health Secretary is due to speak at 11.30am and may announce that more regions in the North will move to Level 3. London is a possibility too, while the UK government has not ruled out a circuit-breaker like that imposed in NI yesterday.
In Ireland, the move to Level 4 for border counties last night was inevitable considering the spike in case in that region and the potential spill over from Northern Ireland. Increased restrictions on social contacts in Level 3 areas also increases the risk that the government will go further country-wide, especially given the large number of cases announced in recent days. Given that the goal is to save lives and ensure that the health sector is not overwhelmed, it is vital that hospitalisation rates are assessed, rather than just cases. In this regard, as of last night there were 234 confirmed COVID-19 cases in hospital as of last night, down from 240 the day previously and compared to 881 at the peak of the pandemic in April. The numbers in ICU have also fallen modestly in recent days and is 80% lower than April.
While most are obsessed with the daily growth in cases, a wider perspective is required here, something even the Tánaiste has been keen to point out in recent weeks.
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Builders Merchants Mixed messages from Dunelm and Norcros
Dunelm (homewares retailer) has released a trading update covering the 13-week period Robert Eason ended September 26th. Trading in Q1 (to end of Sep) was strong with sales up 37%. It had +353-1-641 9271 already been guided in the FY results that July sales were +59% and August sales were [email protected] +24% so this implies that growth in September was c.25%. Management talks about a first David O’Brien quarter that is “materially ahead” of expectations reflecting a buoyant homewares market, +353-1-641 9230 also reflected in lower discounted sales required which is driving gross margins +100bps. In david.a.o’[email protected] addition, it is not seeing significant disruption from regional restrictions but given the vast amount of uncertainty, it is not able to give guidance as the range of possible outcomes is Shane Carberry +353-1-6419118 wide. [email protected]
Elsewhere, Norcros (supplier of bathroom and kitchen products) also released a trading Dudley Shanley update this morning for the 26 week-period ended Oct 4th. Having already disclosed trading +353-1-641 9174 patterns until the July 26th (In the UK – June 91% of prior year levels and July 115% of [email protected] prior year levels), the key for us is how trading evolved in the UK. Q2 revenues in the UK were at 104% of prior year levels (on a lfl basis). Given that Q2 runs from July-September, it includes the benefit of an exceptional trading performance in the first 3 weeks of July (+115%), implying that things slowed in August and September to broadly flat over that 10 week period. Management do note "strong trading momentum" flagging its “leading market positions, stock availability and superior service”. Much like Dunelm, the vast amount of uncertainty means there is no guidance given by Norcros management on a FY outturn.
Overall the two updates this morning paint slightly different pictures. The Dunelm statement is comforting as strong sales rates seem to have been maintained in even the most recent weeks but on the flipside, the Norcros statement suggests that momentum has slowed in Aug/Sep. Is this a case of bigger ticket RMI items (i.e. Kitchens and bathroom) not being as strong as smaller RMI projects (i.e. Homeware related projects)? Trends to watch out for in upcoming releases with Travis Perkins next up on October 22nd.
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CPL Resources Challenging backdrop as expected from UK peers PageGroup and Hays
With PageGroup outlining a challenging, if improving, outlook for the three months to Recommendation: Buy September yesterday, it was the turn of Hays to comment on the market backdrop this Closing Price: €7.85 morning. While PageGroup noted an improving backdrop as the quarter progressed (-42% Gerry Hennigan YoY NFI decline in September, relative to a 47.9% YoY decline for the quarter as a whole), +353-1-641 9274 added selective headcount in verticals such as Technology, and recorded positive EBITA, [email protected] localised lock-downs in the UK and Europe will likely prolong the challenges faced.
A similar tone is struck by management at Hays this morning in its Q1 release (three months to September). Group NFI for the quarter declined 29% YoY on a constant currency basis and is down 34% for the UK and Ireland (-38% in Ireland). As with PageGroup yesterday, placements in sectors such as IT have held up better (-12% YoY), but reflecting the backdrop, consultant headcount in the UK & Ireland decreased by 14% in the quarter and by 21% year-on-year. On the near-term outlook Hays expects “to be modestly profitable” in H1, but stresses sustaining that into H2 assumes “there being no prolonged 'second wave' lockdowns in our key markets.”
As stated previously CPL has out-performed the competition on both sides of the Irish Sea largely due to a c.80% exposure to the Pharma, Technology, Life Science and Healthcare sectors in Ireland and the UK, and its ability to fund a flexible talent (temp.) and managed service solution improving underlying margins. That said, further restrictions enforced by the governments on both sides of the Irish Sea will undoubtedly prolong the challenges faced by the recruitment market.
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