Morning Wrap

Today ’s Newsflow Equity Research 16 Sep 2016 Upcoming Events Select headline to navigate to article

Fyffes Placing of 30m shares (10% of total issued share Company Events capital) 20-Sep GVC Holdings; H1 2016 Results Kingfisher; Q2 2016 Results Lufthansa Credit rating and labour concerns 22-Sep ; Q4 2016 Results

DCC Shanks trading and proposed merger update

Economic Events Ireland

United Kingdom

United States

Europe 22-Sep Consumer Confidence Sep 2016

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Fyffes Placing of 30m shares (10% of total issued share capital)

Fyffes announced yesterday evening that it is placing c.30m of shares (10% of total current Recommendation: Buy issued capital) which, at a 5% discount to last nights close, represents c. €45m of capital. Closing Price: €1.58 Net debt / EBITDA (inclusive of annualised EBITDA from recent acquisitions) will fall from Patrick Higgins 2.75x currently to less than 2x by year-end FY16 and we estimate would fall to 1.6x by year- +353-1-641 0403 end FY17. [email protected]

The rationale for the placing is to maintain balance sheet strength and provide funds for further acquisitions. The statement indicates that the Group has a strong pipeline of opportunities across its four current categories and, indeed, new categories as well. The proposed placing provides Fyffes with acquisitive firepower of up to €100m (3x net debt/EBITDA banking covenant) to complete deals over the next year.

The placing follows from the Group’s recent expansion into a new product category (Highline Produce and All Seasons Mushrooms). The additional capital (€45m) will give the Group the balance sheet strength to continue this acquisition-led expansion next year. We retain our positive stance on the stock given its still modest valuation (FY17 PE of 10.7x post placing and based on yesterday’s close) and significantly de-risked business profile.

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Lufthansa Credit rating and labour concerns

We note two negative developments for Lufthansa. Firstly, S&P has outlined the risk to Recommendation: Sell Lufthansa’s current BB+ credit rating if it does not address its increased financial leverage Closing Price: €10.68 over the next 1 to 2 years. Lufthansa last year issued a hybrid bond to ensure that it Jack Diskin retained FFO/Debt above 23% which is one of the key metrics monitored by S&P. +353-1-641 9193

[email protected] Some measures in H216 will help it decrease its leverage, including the tariff agreement with cabin crew, which will see the Group unwind the cabin crew’s DB scheme. This will be a 'high three digit' million euro impact which will benefit pension deficit. Elsewhere, its largely unencumbered fleet is another potential source of deleveraging.

We believe it has the necessary internal levers to preserve its current rating though pre-existing market concerns around a rights issue may be heightened by S&P’s cautious outlook.

The second development of note regards pay pressure at its LCC unit. Lufthansa may face disruption from Eurowings’ cabin crew after four rounds of talk with the Ver.di union failed to produce a pay deal. The issue concerns the mainline CLA’s which are deemed ‘too favourable’ relative to the current CLAs for Eurowings’ crew, Ver.di is seeking a 7% pay increase, against the company’s offer of a 1.3% pay rise for 2017/18.

We see this not only as a risk to its schedule during the shoulder months of September/October, but also note that any pay increase to cabin crew would widen Eurowings cost disadvantage versus Europe’s premier LCCs.

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DCC Shanks trading and proposed merger update

Shanks, which has a waste product business separated into three divisions – Hazardous, Recommendation: Hold Commercial & Municipal – operating out of the Netherlands, Belgium, UK and Canada, Closing Price: £69.05 provided an update this morning on both trading conditions and the proposed merger with Gerry Hennigan Van Gansewinkel (VGG). +353-1-641 9274

[email protected] Shanks previously announced on July 7th the terms of a proposed merger with VGG, which valued VGG at c.€440m on a debt-free, cash-free basis, based on the closing Shanks share price of 81p on May 23rd. A Shanks closing share price of 102.25p yesterday, raises the current value of the share consideration to approximately €258m, implying an increase in the value of Shanks’ original proposal to c.€494m on a debt-free, cash-free basis. Pre-tax cost synergies arising from the merger are guided at approximately €40m in the third full year following completion.

In terms of trading, the statement this morning from Shanks indicates that current trading for the year to date is in line with management’s expectations on a constant currency basis, while commentary suggests that “VGG has turned the corner in the course of 2016, and is trading significantly ahead of budget based on unaudited numbers and compared to management expectations earlier this year”.

DCC’s environmental division, which operates solely out of the UK and Ireland, dealing with non-hazardous waste management, reported sales of €153m and EBITA of €15.2m for the year to March. That accounted for just 5% of group profit, while the Energy division, the primary source of recent M&A activity, accounted for 68% of overall profitability.

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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 2016f 2017f CRH 29.58 24,127 1.0 -1.2 3.7 10.8 0.4 1.4 5.5 19.1 18.2 14.9 AIB Group 7.00 19,117 16.7 27.3 6.1 5.1 16.0 30.6 7.8 13.0 13.4 24.5 13.04 16,814 - -2.1 7.7 -13.1 -0.6 0.5 9.5 -6.6 14.2 12.3 HeidelbergCement 80.82 16,036 1.9 -1.7 -0.8 6.9 1.3 0.9 0.8 14.9 16.1 14.6 Wolseley 43.78 11,385 1.4 -0.4 1.0 18.6 0.9 1.5 4.7 10.3 17.4 15.3 73.90 12,992 0.9 -3.4 -5.0 -3.2 0.4 -0.8 -3.4 4.1 22.8 20.3 IAG 4.19 8,517 1.1 -0.7 4.0 -31.4 0.5 1.9 5.8 -26.2 5.9 5.0 Mondi 15.89 7,716 0.3 -0.4 -1.9 19.1 -0.3 2.2 -0.3 28.0 12.6 12.1 Paddy Power Betfair 88.25 7,387 -0.4 -3.3 -9.9 -2.8 -0.8 -1.4 -6.6 -9.7 28.3 22.2 DCC 69.05 6,092 1.3 -0.3 -1.6 22.0 0.9 1.7 2.0 13.4 21.0 24.7

Indices ISEQ performance

% Price 1 Day 1 Week 1 Mth Ytd ISEQ 6,128.81 0.45 -2.51 1.37 -9.76 6,800 FTSE 100 6,730.30 0.85 -1.87 -3.04 7.82 6,600 6,400 DAX 30 10,431.20 0.51 -2.29 -2.87 -2.90 6,200 CAC 40 4,373.22 0.07 -3.72 -2.77 -5.69 6,000

FTSE Eurofirst 300 1,339.13 0.55 -2.56 -1.76 -6.85 5,800

Nasdaq 5,249.69 1.47 -0.19 -0.23 4.84 5,600 S&P 500 2,147.26 1.01 -1.56 -1.96 5.05 5,400 Dow Jones 18,212.48 0.99 -1.45 -2.27 4.52 5,200 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Nikkei 225 16,405.01 -1.26 -3.27 -2.75 -13.81

Exchange Rates

Current Px 1 day Px 1 Week Px Dec15 Avg Ytd

Stg/€ 0.852 0.853 0.847 0.737 0.800 STOXX 600 performance US$/€ 1.124 1.125 1.127 1.086 1.116 CHF/€ 1.094 1.095 1.093 1.087 1.094 390 JPY/€ 115.133 115.399 114.605 130.676 121.460 380 370 Bonds 360 350

Yield 1 Day Yld 1 Wk Yld 1 Mth Yld 3 Mth 340 US 2 Yr 0.73 -0.03 0.73 - 0.06 330 US 10 Yr 1.69 -0.01 0.10 0.14 0.12 320 310

UK 2 Yr 0.14 -0.01 -0.00 0.01 -0.20 300 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 UK 10 Yr 0.79 0.02 0.13 0.26 -0.33

BD 2 Yr -0.65 0.01 -0.00 -0.65 -0.05

BD 10 Yr 0.03 0.01 0.09 0.03 0.04

Irish 10 Yr 0.49 -0.00 0.09 0.13 -0.33

Commodities FTSE 250 performance

% Current 1 day 5 day 1 Mth 1 Yr 18,500 Brent (ICE $/bbl) 45.85 - -4.50 -5.17 -1.67 18,000 Gasoline (NYM $/Gal) 1.43 5.03 5.06 2.09 7.28 17,500

Heat Oil (NYM $/Gal) 1.41 2.32 -1.17 -2.50 -5.75 17,000

Nat.Gas 2.89 - 3.29 11.54 5.90 16,500

Gold $/oz 1,321.75 - -0.68 -1.32 19.51 16,000

Silver $/ozt 19.04 - -1.91 -4.32 32.68 15,500

Copper U$/MT 4,727.00 0.69 2.26 -0.40 -10.64 15,000

Wheat $/BU 4.03 - -0.12 -4.50 -18.54 14,500 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16

Source : FactSet

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