Morning Wrap

Morning Wrap Today ’s Newsflow Equity Research 17 Feb 2021 08:26 GMT Upcoming Events Select headline to navigate to article Total Produce Dole combination should unlock significant Company Events value 18-Feb Air France-KLM; FY20 Results Barclays; FY20 Results Irish Banks Further speculation on Ulster Bank / AIB loan 19-Feb IRES REIT; FY20 Results Kingspan; FY20 Results sale / BOI and branches NatWest Group; FY20 Results SEGRO; FY20 Results 23-Feb HeidelbergCement; FY20 Results HSBC; FY20 Results 24-Feb Lloyds Banking Group; FY20 Results William Hill; Q420 Results Economic Events Ireland United Kingdom 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<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 Total Produce Dole combination should unlock significant value Total Produce (TP) has announced this morning that it has entered into a binding agreement Recommendation: Buy to combine with Dole (TP currently owns 45%) under a new entity called Dole plc. TP Closing Price: €1.47 shareholders will receive 82.5% of Dole plc shares with the remaining 17.5% going to the 55% owner of Dole, Castle & Cooke (C&C). As per the agreement, the new entity will IPO Patrick Higgins +353-1-641 0403 and list in the US. In addition, Dole plc, the newco, will raise $500-700m of equity capital [email protected] which will be used to de-lever the combined balance sheet to c.3x. The combination of the two companies is expected to lead to synergies of $30-40m over the medium term through revenue expansion and cost efficiencies across products, regions, procurement, and supply chain. The equity raise will see net debt / EBITDA of 3.0x. Thereafter, the Group has secured committed debt facilities to backstop and refinance existing Total Produce and Dole debt facilities upon completion of the transaction. This will result in a significant improvement in average cost of capital and earnings and FCF profiles. The minimum agreed valuation of $215m for the remaining 55% stake in Dole would imply Total Produce's fair value of the combined entity is c.$1bn (c.€850m) which represents a c.46% premium to the current share price. This valuation implies an EV/EBITDA multiple of c.7.6x pre synergies (6.9x post synergies). Overall, we consider the transaction, which is expected to close in late Q2 / early Q3, to be a strong strategic step for Total Produce. It resolves a longstanding overhang for the stock, creates the clear global leader in the fresh produce sector, and enables management to focus on unlocking the significant value from the combined entity. Home… This document is intended for the sole use of Goodbody Investment Banking and its affiliates Page 2 17 Feb. 21 Goodbody Morning Wrap Irish Banks Further speculation on Ulster Bank / AIB loan sale / BOI and branches The Joint Committee on Finance, Public Expenditure and Reform released a statement Eamonn Hughes yesterday entitled “Interim report on banking – Ulster Bank”. It said it understands an +353-1-641 9442 announcement on the outcome of the strategic review being undertaken by Natwest of UB’s [email protected] operations in Ireland may be imminent and the release expressed the Committee’s concern Barry Egan about the implications of an exit. It requested that UB/Natwest representatives engage with it +353-1-641 6059 at the earliest opportunity and it is seeking an urgent Dail (parliamentary) debate on the issue. [email protected] The Committee noted that if Ulster Bank/Natwest representatives don’t engage in timely and meaningful manner with the Committee that “it is of the opinion that it will have to give serious consideration to recommending the urgent introduction of legislation to require that any sale of Ulster Bank assets is to another pillar bank or banks, notwithstanding the competition issues that might arise as a result”. However, the Finance Minister Pascal Donohoe said that the decision is being made by Natwest, adding that “neither I nor the Oireachtas have a formal role inside the decision-making process at Natwest”. In recent months, UB has declined offers to appear before the Oireachtas Finance Committee as the strategic review is ongoing and presumably Natwest’s full listing status means all shareholders will have to be informed of its decision at the same time. Maybe investors were a little nervous about the reference on legislating on UB loan sales and the implications from a Natwest perspective, but it would seem difficult to us how Ireland could legislate for actions of a UK corporate and we note the Finance Minister’s observation that the decision lies with Natwest. All the same, the timing of the Oireachtas statement probably only adds to the speculation building into Friday’s Natwest FY20 results when it is due to update the market on UB strategic review outcome, if it has reached a conclusion. The Central Bank governor spoke at a Leaders Lounge Event yesterday. The main themes of the speech were on leading through disruption, but he made a few references to the financial system. He started off by saying that an important difference to what we experienced ten years ago – so far at least – is that the financial system has been able to absorb rather than amplify the effects of the shock. Nonetheless, he added that the more prolonged need for measures to contain the pandemic persist, the greater the risk that liquidity problems will evolve into solvency pressures for affected businesses, increased risk of financial difficulties for households, and greater challenges for the financial system and wider economy. He also suggested that the Central Bank is also focused on the approach of the financial system to managing distressed debt, including that related to pre-existing mortgage arrears. There was nothing too surprising in the Governor’s remarks about the financial This document is intended for the sole use of Goodbody Investment Banking and its affiliates system and these are issues we (and investors) are also monitoring closely. Bloomberg reports that AIB has chosen Apollo for its Project Oak NPE portfolio sale, which originally had a par value of €1bn. No further details were available. AIB’s NPEs were 6.6% of loans at the Q3 but are anticipated to rise in the pandemic. All the same, the move was widely anticipated and will help AIB manage is its legacy NPE book and minimise the impact from calendar provisioning. Finally, the Irish Independent reports that BOI is in talks with An Post (Irish Post Office) on plans to use the post office network for BOI customers, with the move seen as suggesting at potential reconfiguration of its brank network in its ongoing business transformation. BOI is due to report FY20 results on March 1st at which we expect it to announce that it is reducing its current FY21 cost target of <€1.65bn to c.€1.5bn by FY23. Home… Page 3 17 Feb. 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 Euronext Dublin 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. 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