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Kingspan FY20 to be a year of profit growth Company Events 16-Nov Group; Q221 Results Irish Banks EU banks should focus on cost cutting and Kingspan; Q320 Trading Update need a more discerning regulator 17-Nov easyJet; FY20 Results 18-Nov Breedon Group; Q320 Trading Update UK Housebuilders Rightmove asking prices fall 0.5% in British Land Company; Half Year Results 2021 November ; Q121 Trading Update SSP Group; Full year results Supermarket Income REIT Accretive acquisitions add to 20-Nov Mitchells & Butlers; Full year results 23-Nov Codemasters Group; Q221 Results occupier mix Hibernia REIT Preview ahead of Tuesday’s HY21 Results

Economic Events Ireland

United Kingdom

United States

Europe

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Kingspan FY20 to be a year of profit growth

Kingspan has released a trading update for Q320. Group lfl sales were -6% in Q320 (+1% on Recommendation: Buy a reported basis) compared to -19% in Q220 and -7% in Q120. Order backlogs in Insulated Closing Price: €79.75 Panels have improved to +10% yoy compared to broadly flat in August. Management notes that overall end markets are in “reasonable shape”. Trading in the fourth quarter today is David O'Brien +353-1-641 9230 “strong” somewhat aided by accelerated demand ahead of anticipated price increases. david.a.o'[email protected] Against this backdrop management has guided for trading profit to be marginally ahead yoy for FY20, implying a stellar performance in H220 (trading profit +13% yoy vs -13% in H120)

as the group navigates challenging macro conditions. On first glance we will be upgrading our FY20 trading profit forecast by 12% to €502m and 7% for FY21 (€528m). The performance of Kingspan in FY20 once more highlights why the stocks warrants a premium rating within the building materials sector.

The key highlights are:(i) Insulated Panels experienced a 7% lfl sales decline in Q320 which compares to a 12% decline in H120 (-8% in Q120). Overall Panel backlog is +10% yoy compared to broadly flat in August with France, Germany and Latam performing well while the UK is relatively softer albeit improving; (ii) Insulation Board sales declined by 5% on a lfl basis Q320 improving on the -18% in H120 (-8% in Q120). Volumes improved in Q3 with raw material price deflation in the early part of the period offsetting this; (iii) Light & Air saw lfl sales down 8% yoy compared to -5% in H120 (+1% in Q120) with a solid performance in Europe offset by a more sluggish backdrop in the US; (iv) Cash generation has remained strong with net debt coming in at €313m which compares to €438m at the H120 end.

Kingspan management is guiding for FY20 trading profit to be marginally ahead yoy. This implies an 12% upgrade to our trading profit forecasts (7-8% for consensus). This implies that trading profit will increase by 13% yoy in H220 on the back of a 2% lfl sales decline with operating margins up by over 100bps yoy. This compares to a 13% decrease in H120 trading profit and an 60bps decline in operating margin. Such a performance highlights Kingspan’s ability to adapt the business in all market conditions and makes them one of the few building materials companies to grow profits yoy for the year as a whole.

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Irish Banks EU banks should focus on cost cutting and need a more discerning regulator

There is an interesting opinion piece in the FT on European banking from the head of Copper Eamonn Hughes Street Capital. In a nutshell, the author is arguing that calls for pan-European M&A to solve +353-1-641 9442 many of the sectors ills are misplaced, that Europe needs a stronger resolution authority [email protected] (excluding national governments in the wind-up process) to remove undercapitalised, Barry Egan unprofitable institutions. Revenue headwinds are here to stay for a while, so radical cost- +353-1-641 6059 cutting is the key. Some domestic M&A to reduce fragmentation and eliminate sub-scale [email protected] players that can’t make the required technology investments would also help. But regulators have an important role to play to pressure weaker players to have a plan for sustainability or

face resolution, but that blanket application of rules, like dividend bans, is punishing the

good and protecting the weak, stifling progress. Differentiation will create a smaller number of healthier, more profitable institutions better able to invest and adapt to the new digital future.

All very sensible an arguably reiterates many of the issues already hotly debated by many observers of the sector. However, it is nonetheless well timed as the ECB reconsiders its dividend ban on European banks in the next few weeks. Clearly, it has three options, leave it in place, remove the blanket ban, or alternatively, start to differentiate between the strong and the weak and obviously the latter would be a step in the right direction. Elsewhere, cost cutting is indeed necessary and as we have noted extensively since the summer, the c.15% reduction in medium term revenues for the Irish banks post Covid has accelerated the need for the banks to tackle costs. Our expectation is that AIB will need to consider moving its c.€1.5bn cost base down to c.€1.3bn, with BOI moving from <€1.65bn down to c.€1.5bn, with AIB likely to update the market in the next few weeks on its plan (as flagged in its Q3 IMS). That will support getting ROTEs back up in to the mid-hi single digit range on what are actually very strong capital bases at 13.7-16.1%. Even the ongoing speculation around Ulster Bank’s future highlights the dilemma for the parent from low returns though also with far too much capital tied up (28.5% CET1 ratio). Plus, it is also worth highlighting that the main Irish banks have taken impairments relating to Covid using loss models that incorporate a shocking loss history from GFC. As a proxy, H1 impairments were 42% of the 2018 EBA stress test adverse (3-year) scenario for AIB and 30% for BOI vs just 21% for EU peers, providing a bit more comfort around those capital positions. We don’t see dividends from the Irish banks from FY20 earnings - they both incur large losses in FY20 - but distributions could be back on the cards as they more through 2021.

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UK Housebuilders Rightmove asking prices fall 0.5% in November

Rightmove has published its November house price index this morning. Asking prices Shane Carberry declined slightly in November as prices fell by -0.5% from October when they increased by +353-1-6419118 the most in four years. The year on year rate of increase now stands at +6.3% up from [email protected] +5.5% in October. Given the recent comments about a mini-boom, Rightmove’s comments Dudley Shanley about there still being some legs left in the upwards march of prices and continued strong +353-1-641 9174 demand from buyers, the decline in November is a surprise. [email protected]

Rightmove pointed to a rush of sellers bringing properties to the market at realistic prices in David O’Brien +353-1-641 9230 a bid to meet the Stamp Duty holiday deadline in March 2021. The strongest increased in david.a.o’[email protected] activity was in more expensive properties where the Stamp Duty savings are largest.

Robert Eason On a medium-term view, we continue to believe that once furloughing schemes +353-1-641 9271 unwind and true levels of unemployment are realised, house prices will begin to [email protected] fall. However for now, pricing in the UK housing remains buoyant supported by supply/demand dynamics and government support.

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Supermarket Income REIT Accretive acquisitions add to occupier mix

SUPR has announced that it has acquired two supermarkets plus an online fulfilment centre Recommendation: Buy and sundry retail units in a £63.4m net (~£68.3m gross) transaction from British Land. The Closing Price: £1.05 assets are in Beaumont Leys, Leicester. The transaction reflects a combined net initial yield Colm Lauder of 6.4%. This asset is likely to add £4.4m to SUPR’s annualised rent roll. +353-1-641 6042

[email protected] The supermarket operators include Tesco Extra (the main tenant) along with Aldi. The Tesco store was originally developed in the 1980’s and subsequently extended and refurbished in 2007 to a 97,000 sq.ft net sales area Tesco Extra. The Tesco unit also includes purpose-built online fulfilment facilities which support the operator’s online grocery deliveries across the 262,000-population catchment area. It is being acquired with an unexpired lease term of 7 years, with 5-yearly, upwards only, open market rent reviews with the next rent review in February 2023.

The Aldi supermarket is new, pre-let, and opening later this year. As would be expected, it is considerably smaller than the Tesco Extra at 14,800 sq.ft. It has been acquired with an unexpired lease term of 25 years (with break options at years 15 and 20) with 5-yearly, upwards only, RPI-linked rent reviews (subject to a 2.5% cap and 1.0% floor). Adjoining the Tesco Extra and the Aldi supermarket is a parade of units comprising 33,000 sq ft net sales area, predominantly occupied by Costa, , WH Smiths and .

The addition of another strategically important Tesco to SUPR’s portfolio continues the alignment with SUPR’s investment objectives and will provide a further boost to SUPR highly secure rent roll. The Aldi adds something new to the mix, it is SUPR’s first discounter and is unusual in that it is on a long and inflation linked lease (most Aldi/Lidl’s are owner occupied or on market rent reviews). The addition of a new operator will further diversify the rent roll (now five operators: Tesco, Sainsbury’s, Morrison’s, Waitrose, and Aldi).

As we add this transaction, and the earlier Sainsbury's in Newcastle, to our model, this will allow us to lift earnings and dividends expectations.

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Hibernia REIT Preview ahead of Tuesday’s HY21 Results

Hibernia REIT (HBRN:ID) will release its HY21 results (covering the six months to the end of Recommendation: Buy September 2020) on Tuesday morning (17th November) at 7am GMT. These results cover Closing Price: €1.25 one of the most tumultuous periods in Irish economic history, but we are expecting a robust Colm Lauder outturn given how solid HBRN’s rent collection performance have been throughout the +353-1-641 6042 COVID-19 pandemic. For the first time in eight years in the Dublin office market, we are [email protected] expecting capital value declines.

The Dublin office market has witnessed a dramatically reduced deal volume, both from an occupational and investor perspective. Tenants are, in the main, unwilling to make major decisions and investors have been cautious. This has resulted in some additional caution being priced in, with the latest MSCI valuation data for Q3 (September end so concurrent with HBRN HY) showing that Central Dublin Office capital values were down 1.7% over the last six months. More recently, several transactions have closed at pricing in-line with pre- COVID expectations and some ahead (mostly notably 28 Fitzwilliam at a sub-4% net initial yield), however uncertainty remains around market rents which will temper valuations.

HBRN continues to trade at a wide discount to both its last reported NAV (179c) and our forecasted HY21 NAV (173c). At a discount to our 2021 NAV of 25%, HBRN is cheaper than peers GPOR (0.85x) and DLN (0.86x), despite offering superior dividends (4.2% v. 2%). HBRN’s rent collection has also been stronger and a robust HY should draw further attention to the value on offer.

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We would like to inform you that Eamonn Hughes holds shares in AIB Group We would like to inform you that Dudley Shanley holds shares in Cairn Homes We would like to inform you that Robert Eason and Dudley Shanley hold shares in Kingspan

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