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Morning Wrap Today ’s Newsflow Equity Research 18 Jun 2019 08:27 BST Upcoming Events Select headline to navigate to article Team17 Group Revenue and EBITDA upgrade for FY19 Company Events 19-Jun Berkeley Group; FY19 Results Frontier Developments FY19 Trading Update – JWE Origin Enterprises; Q319 Trading Update driving outperformance Whitbread; Q119 Trading Update 25-Jun Carpetright; FY19 Results Building Materials RMI sector in Ireland set to get a boost from climate change policies First Derivatives Completion of acquisition of minority interest in Kx Irish Banks IMF concludes its latest consultation with Ireland Irish Banks Government publishes climate change targets by 2050 Economic Events Ireland 20-Jun Irish Gov T-Bill Auction 21-Jun PPI May19 United Kingdom 19-Jun CPI May19 PPI May19 Retail Price Index May19 20-Jun Retail Sales May19 BoE Official Bank Rate 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 the Irish Stock Exchange 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 Team17 Group Revenue and EBITDA upgrade for FY19 Team17 updated the market this morning ahead of H1 results in September. Of note, Recommendation: Hold revenue (Consensus: £47.5m) and adjusted EBITDA (Consensus £16.5m) are now expected Closing Price: £2.47 to be ahead of expectations for the current year. Patrick O'Donnell +353-1-641 6013 Management note strong performance in sales across its back catalogue, along with a solid [email protected] profile of income from new releases with higher proportion split of licence fees. New Titles releases in H1 include My Time at Portia and Hell Let Loose, along with downloadable content for The Escapists 2 and Overcooked 2. Other partnerships announced include Blacklight Games, for the game “Golf with your Friends”, Hermes Interactive for “Automachef”, intended to launch for Nintendo Switch and Steam this summer, a second title from Playtonic Games, “Yooka -Laylee” and a new partnership with The Game Kitchen for “Blasphemous”. We will be upgrading our forecasts on the back of this morning’s announcement, with an expectation of revenue of £51m and adjusted EBITDA of £17.8m for FY19. Clearly on the back of strong sales to date and recent announced partnerships, Team17 continues to make strong progress in terms of building a broader platform of titles generating strong organic growth through higher licencing splits particularly driven by downloadable content. We continue to caution that in a market where IP is becoming more in demand as new platforms emerge, Team17’s share of revenue from owned IP continues to lag third party IP. Home… Frontier Developments FY19 Trading Update – JWE driving outperformance Frontier Developments updated the market for the full year to 31 May. The company said Recommendation: Sell Closing Price: £11.04 revenue is expected to be £89m (Goodbody Est £80.7) representing a 250% increase on FY18 (£34.2m) reflecting the mass marketed launch of Jurassic World Evolution (“JWE) Patrick O'Donnell which launched in June 2018 but also through DLC from existing titles including Elite +353-1-641 6013 Dangerous and Planet Coaster. Management flag expected operating profit of £18.7m based [email protected] off a 21% margin. Frontier Developments will launch Planet Zoo later this year and flag a strong initial reception from its player base. This document is intended for the sole use of Goodbody Stockbrokers and its affiliates Whilst this is a strong trading update, including better than anticipated DLC revenue, we continue to remain cautious on the Frontier roll out strategy. In the context of the mass marketed launch from JWE in FY18, we also expect sales of this franchise to fall heavily in 2019 and apply a 60% decline in our forecasts for 2020 for that game. We continue to believe that launching one new title per year will place further pressure on the business to manage the back catalogue effectively over time and retain a cautious £25m sale estimate from each new franchise per annum. Home… Page 2 18 Jun. 19 Goodbody Morning Wrap Building Materials RMI sector in Ireland set to get a boost from climate change policies Yesterday the Irish Government launched its plan for climate change and policy measures to David O’Brien reduce carbon emissions and achieve the EU objective of net zero by 2050. The report looks +353-1-641 9230 to address this by focusing on a number of sectors including electricity, enterprise, built david.a.o’[email protected] environment, transport and agriculture, forestry and land use. Robert Eason +353-1-641 9271 In the report it is estimated that c.13% of Ireland’s greenhouse gases in 2013 came from the [email protected] built environment and relative to Europe this segment has been poor at addressing the issue. To reduce emissions from buildings some of the measures that the Government is looking to Sarah Stokes +353-1-641 0482 introduce include: (i) retrofitting homes to a BER B2 standard, with a target of 500k homes [email protected] by 2050 versus less than 1,000 in 2017; (ii) Increase the number of heat pumps installed in residential properties from 17.5k in 2017 to 400k in 2050; and (iii) Increase use of heat Sean Blaney pumps in commercial buildings to 25k by 2050. +353-1-6419222 [email protected] While the detail of the above is still to be finalised, especially the funding mechanisms to incentivise the above actions, it is a potential boost for rmi construction activity in Ireland. However, we hope the Irish Government has learnt the lessons from the failures of the green deal in the UK and the success of the simplicity of the home renovation scheme in Ireland. Grafton Group is the most exposed to such rmi activity with c.20% of group sales from Ireland. Kingspan would also be a beneficiary given increased use of insulation in retrofitting buildings to the appropriate standard but Ireland now represents only 3% of group sales. Home… First Derivatives Completion of acquisition of minority interest in Kx Having outlined in July last year an intention to acquire the final 35% interest in Kx Systems Recommendation: Buy not owned, First Derivatives has announced this morning that it has completed the Closing Price: £34.60 transaction bringing its ownership to 100%. Terms are as previously outlined – total consideration of $53.8m in cash – reflected in our FY20 Net Debt / EBITDA estimate of 1.2x. Gerry Hennigan +353-1-641 9274 [email protected] Closure of the transaction, and full ownership of Kx Systems, is a clear positive milestone for First Derivatives, given that the Kx technology underpins the value proposition of First Derivatives, the commercialisation of which management at This document is intended for the sole use of Goodbody Stockbrokers and its affiliates First Derivatives has extended into new verticals. Home… Page 3 18 Jun. 19 Goodbody Morning Wrap Irish Banks IMF concludes its latest consultation with Ireland The IMF concluded its latest consultation review with Ireland, publishing its findings on its Eamonn Hughes website. The report looks at the state of the economy and makes references to the banking +353-1-641 9442 sector. Link to report [email protected] (https://www.imf.org/en/Publications/CR/Issues/2019/06/14/Ireland-2019-Article- Colin Jackson IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-46994). +353-1-641 6050 [email protected] The IMF report notes that the downsized banking sector is well capitalised and liquid, but Barry Egan profitability is under pressure. It notes NPLs are still high but reducing and household +353-1-641 9492 balance sheets have improved. The IMF acknowledged that Ireland is vulnerable to a no-deal [email protected] Brexit, with the IMF recommending that the government should let automatic fiscal stabilisers operate freely and provide targeted support to hard hit sectors. The IMF noted John Cronin +353-1-641 9187 that in such a scenario, a fiscal stimulus may be called for and in the case of a sharp credit [email protected] contraction, the countercyclical capital buffer (currently set at 1.0%) could be released. To help reach the targets for NPL reduction, the IMF supports measures to accelerate legal processes, encourage creditor-borrower engagement, and enhance supervisory efforts. The IMF welcomed the proactive use of macroprudential policy tools and endorsed the expansion of the toolkit with a systemic risk buffer and debt-based measures. They also encouraged further strengthening the AML/CFT framework. The IMF report shows good progress being made by the banks, but obviously more remains to be done on NPEs. We anticipate continued reductions in NPEs this year and beyond, with the banks on target to have NPEs c.5% by year end and likely to 2-3% in due course. We also note the reference to the CCyB should Brexit unfold, but its appears the Central Bank will also be encouraged by the support of the introduction of an SyRB as well. Home… This document is intended for the sole use of Goodbody Stockbrokers and its affiliates Page 4 18 Jun.