Morning Wrap

Today ’s Newsflow Equity Research 04 Apr 2016 Upcoming Events Select headline to navigate to article

Economic View Self-driving economy – Q2 Health Check Company Events 04-Apr ; Traffic stats Mar'16 05-Apr Cranswick; Q4'16 results Ryanair March stats wraps a stellar year of traffic growth IAG; Traffic stats Mar'16 06-Apr Apogee; Q4'16 results Norwegian Air Shuttle; Traffic stats Mar'16 Topps Tiles; Q2'16 results First Derivatives Positive update leads to further upgrade 07-Apr Donegal Investment Group; Q4 2015 Results 08-Apr Air France-KLM; Traffic stats Mar'16 Lufthansa; Traffic stats Mar'16

European Airlines Flags March traffic previews

FBD Holdings Pressure mounting for legal system to follow to new compensation guidelines

Mondi Russian competition authority looking to investigate Economic Events fine paper pricing Ireland 05-Apr Investec Services PMI Mar'16 07-Apr CPI Y/Y 08-Apr Consumer Confidence Mar'16 US Building Materials US construction below expectations Industrial Production Feb'16 but monthly data is firm United Kingdom

08-Apr Industrial Production Feb'16 Y/Y Banks Central Bank quarterly update – CCB kept at 0%; defaults a key driver of SME rates United States 06-Apr MBA Mortgage Applications 04/01

Europe 04-Apr PPI NSA Feb'16 05-Apr Markit PMI Mar'16 Retail Sales Feb'16 07-Apr Trade Balance Feb'16

Goodbody Capital Markets Equity Research +353 1 6419221 Equity Sales +353 1 6670222 Bloomberg GDSE

Goodbody Stockbrokers (trading as Goodbody) is regulated by the Central . For the attention of US clients of Goodbody Securities Inc, this third-party research report has been produced by our affiliate Goodbody Stockbrokers. Please see the end of this report for analyst certifications and other important disclosures. Goodbody Morning Wrap

Economic View Self-driving economy – Q2 Health Check

In our Q2 Health Check published this morning, we are leaving our economic forecasts Dermot O’Leary +353-1-641 9167 broadly unchanged, with strong economic momentum expected to continue. This is despite [email protected] clear external (Brexit) and internal (political uncertainty) risks. Core domestic demand is expected to grow by 5% in 2016 (unchanged), following a 4.4% expansion in 2015. Given the distortions within the Irish GDP aggregates (7.8% in 2015, 5.0% in 2016, unchanged), we believe core domestic demand provides a more meaningful gauge of economic momentum in Ireland.

One year since their introduction and with a CB review coming, we analyse the impact of the macro prudential mortgage rules. On the positive front, the rules have led to a fall in price expectations, thus reducing the odds of another credit-fuelled housing boom. On the negative side, the rules have had a detrimental impact on the recovery in lending (-20% yoy in most recent data) and on the market in particular. While we favour a retention of the LTI rules as they currently stand, consideration should be given to altering the LTV rules to take account of the early stage of the cycle and important geographical differences.

Ongoing political uncertainty following Election 2016 has yet to impact on markets or the economy, but the longer the policy vacuum continues, the bigger the risks get. In the context of very limited “fiscal space” over the coming years, we believe a renewed focus needs to be placed upon productive capital investment, given growing pressures and the record low level of spending currently.

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Ryanair March stats wraps a stellar year of traffic growth

March traffic stats came in broadly in line with demanding expectations, with passenger Recommendation: Buy growth of 28% yoy to 8.5m. Load factor was better than forecast at +4% (vs 3%) on slightly Closing Price: €14.20 lower than expected capacity growth. Mark Simpson

+353-1-641 0478 Total pax for the March year end runs out at 106.36m, up 17.5% yoy, slightly ahead of the [email protected] previous guidance for 106m.

This caps a remarkable year of passenger growth and, in particular, load factor improvement, which has seen overall load factors improve by circa 4.6ppt to 92.9% for the year as a whole.

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First Derivatives Positive update leads to further upgrade

First Derivatives provided a trading update this morning covering the year to February 29th, Recommendation: Buy the main feature of which is commentary that the “Board now expects the financial Closing Price: £14.62 performance for the full year to be comfortably ahead of current consensus forecasts”. Gerry Hennigan Consensus in terms of sales and EBITDA is outlined at £109.5m and £22.1m, relative to our +353-1-641 9274 estimates of £109.1m and £20.7m (£22.2m excluding stock compensation as per the FD [email protected] definition).

Drivers of the top-line outperformance would appear to derive both from the consulting and software sides based on an indication of a number of new consulting customer wins and a record number of software deals in the second half of the year. Significantly, the recurring nature of software licence deals will see the full impact of contracts signed in H2 reflected in the year to February 2017, thus maintaining a positive tailwind for the current year.

Prior to the statement our FY17 expectations were for sales of £122.7m and EBITDA of £24.3m (£25.6m adding back forecast share based payments). In light of the update this morning we raise our FY16 and FY17 sales forecast to £115m and £129m and our respective EBITDA estimates to £21.4m and £25.0m (£22.8m and £26.2m adding back share based payments in line with the FD definition).

The statement from FD this morning clearly indicates a continuation of positive upward momentum reflected in YoY revenue growth in excess of c40% and EBITDA growth of c50%. As indicated in our recent report ‘Right time, right place’ two trends heighten forward expectations for First Derivatives – the transition of data analysis towards the core competency of FD and the securing of a controlling stake (65%) in Kx Systems. The statement this morning suggests that momentum will be maintained into FY17.

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European Airlines Flags March traffic previews

IAG is to report March traffic stats on Tuesday 5th. We are looking for overall RPK growth of Mark Simpson +353-1-641 0478 15% (7.3% ex-AERL) and a 1.4ppt improvement in load factor to 80.9%. Q1s outrun is [email protected] therefore expected to show 14.2% overall growth in RPK and a 1.4% load factor improvement to 79.1%. Jack Diskin +353-1-641 9193 [email protected] Schedule data for Vueling indicates a further acceleration in capacity growth from 11% and

20% in January and February respectively, to 22% in March. Load factor is also expected to be up by circa 3ppt. BA is expected to record circa 3.2% ASK growth and a 50bp lift in load factor. Importantly, we see this modest growth as a further reflection that capacity growth on the all-important North Atlantic routes remains in line with demand, with this underpinning yields for the quarter (and we think year).

Air France-KLM is set to report March traffic on Friday, April 8th with potential upside bias to the release. We forecast flat March load factor and flat capacity. A positive Easter impact and 3 days of ATC strikes are factors which should offset one another. However, schedule data shows capacity is running ahead of our forecast at +2%, despite ATC disruptions. The company reported +3pt/+1pt growth in Jan/Feb. Risk is to the upside should its repeat its Jan/Feb load factor performances on rising capacity, with no deterioration on pricing. We expect a continuation – rather than a deterioration – of negative pricing.

Lufthansa’s March traffic release is due Monday, April 11th. We forecast flat March load factor on 4% capacity growth. For Q1, given weak February stats, we therefore expect Q1 LF at - 0.6pts, with capacity expected to be +5.5%. Despite an Easter benefit, a softer unit revenue outlook will not surprise. ‘Clearly negative’ would suggest deterioration from Feb’s ‘negative’ trend, but the company has already flagged a weaker late booking profile for March/Easter.

The traffic impact of the Brussels attack should be relatively muted in this release, as only <5% of its seat capacity is exposed. However, this rises to 9% when accounting for the Group’s subsidiary stake in Brussels, though Brussels is not included in its traffic comps.

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FBD Holdings Pressure mounting for legal system to follow to new compensation guidelines

Press reports (The Irish Independent) indicate that the legal system is coming under Recommendation: Hold increasing pressure to adhere to the updated “book of quantum” guidelines due to be Closing Price: €6.30 published this summer. The current set of guidelines are 12 years old and are considered out Eamonn Hughes of date. The Jobs Minister, Richard Bruton, has held a meeting with the President of the High +353-1-641 9442 Court in an effort to get judicial support for the new guidelines. The meeting follows [email protected] complaints that the courts are awarding significantly higher damages than the insurance companies had expected, which is leading to significant premium inflation (with motor premiums up 30% in the past year).

Increased use of the book of quantum would be a positive for the industry (and FBD) and should both standardise settlement amounts and reduce legal and administrative costs. The Injuries Board recently reported that claims processing costs for claims settled through the Injuries Board stood at 6.5% compared to up to 60% for comparable cases processed through litigation.

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Mondi Russian competition authority looking to investigate fine paper pricing

Mondi has a issued a statement this morning in relation to a press release from the Federal Recommendation: Hold Antimonopoly Service of the Russian Federation who indicated it has initiated an Closing Price: £13.48 investigation into Mondi Syktyvkar. The violation of antimonopoly law is in respect to the David O'Brien pricing of offset paper (fine uncoated paper). Mondi notes it has yet to receive the details of +353-1-641 9230 such an investigation and “believes it has not violated any such laws”. For all products david.a.o'[email protected] supplied by Mondi, Russia represents 8% of group sales.

As is always the case with antimonopoly investigations, it is difficult to make a judgement on such news but it is encouraging to see Mondi firmly saying it believes it has been compliant. This follows a similar statement from Mondi two weeks ago when it responded to a European investigation of the kraft paper and industrial bags sector.

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US Building Materials US construction below expectations but monthly data is firm

US annualised construction spending for February came below expectations, with annual Robert Eason +353-1-641 9271 growth negative at 0.5% mom versus consensus for +0.1%, and down from the revised [email protected] 2.1% growth reported in January. David O’Brien +353-1-641 9230 On a monthly basis, construction spending was up 11.4% yoy (+11.1% in January, +9.4% in david.a.o’[email protected] Q415). Similar to trends seen in January, there was a further pick-up in non-residential Sarah Reilly (+11.3%, +11.0% in January, and +7.7% in Q415) with residential holding firm at 11.6% +353-1-641 6080 (+11.2% in January, +12.3% Q415). In addition, the highways component continues its [email protected] strong start to the year, up c. 27%, albeit it is worth remembering that Q1 is typically the Jason Molins weakest quarter, accounting for less than 15% of the full year contribution. +353-1-641 9141 [email protected]

While the headline number is a touch disappointing, we note the robust monthly data for February. This underlines the solid start to the year for the heavyside players in the US, consistent with what we have heard from most management teams during recent results presentations.

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Banks Central Bank quarterly update – CCB kept at 0%; defaults a key driver of SME rates

The Central Bank of Ireland published its Q1 quarterly update on Friday (April 1), with a Eamonn Hughes +353-1-641 9442 number of comments in relation to the banking sector. [email protected]

Firstly, the CBI maintained its Countercyclical Capital Buffer (CCB), updated quarterly, at Colm Foley +353-1-641 6042 0%. Secondly, it published a piece on understanding SME interest rate variation across [email protected] Europe. The results of its cross-country analysis finds that the previous experience of SME Sarah Dunne defaults, forward-looking default predictions under stress scenarios, a larger crisis induced +353-1-641 0482 macroeconomic shock, a more stressed banking sector and weaker competition are all shown [email protected] to be associated with higher SME borrowing costs. Conversely, measures of the cost of funds, banking sector profitability and cost efficiency and the recoverability of collateral do not appear to have any association with SME interest rates. Thirdly, the CBI published a piece on enhanced interest rate statistics (Monetary Financial Institution Interest Rate, MIR) for Ireland (a harmonised framework for collecting data). The gross new lending series shows the proportion of renegotiated contracts for mortgages is significantly higher in Ireland and has resulted in lower weighted average MIRs compared with gross new lending. The new mortgage lending data shows a clear shift to fixed rate product last year (roughly half new mortgages now fixed).

The CCB is anticipated to remain at 0% until 2019, at which stage it will move to 0.5% (and 1.5% by 2021). Whilst there is much debate about higher SME rates in Ireland than elsewhere in Europe, attributed to banking competition, the CBI paper shows that the higher default rate in Ireland (current and historic) also plays a key part in setting rates. Home…

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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 AIB Group 9.37 25,589 3.0 4.0 37.8 40.7 4.3 4.6 40.1 54.5 18.1 26.3 CRH 24.76 20,195 -0.3 0.4 3.3 -7.3 1.0 1.0 5.0 1.8 15.6 12.3 Ryanair 14.20 19,433 0.2 3.0 -0.1 -5.4 1.5 3.7 1.6 3.8 15.4 11.7 HeidelbergCement 74.95 14,871 -0.4 1.6 8.2 -0.9 0.9 2.2 10.0 8.8 13.7 13.0 81.31 14,294 -0.7 -0.1 0.5 6.6 0.6 0.5 2.2 17.0 24.6 21.7 IAG 5.52 11,221 -0.3 1.8 -0.6 -9.6 1.0 2.4 1.0 -0.7 6.1 5.0 Wolseley 39.80 10,350 1.0 2.5 6.3 7.8 1.5 1.8 5.5 9.1 16.3 14.4 Paddy Power Betfair 97.15 8,132 0.1 4.5 -7.9 7.0 0.6 3.7 -8.7 8.3 31.5 26.1 Bank of Ireland 0.26 8,290 0.4 -1.5 -3.0 -24.3 1.7 -1.0 -1.4 -16.8 10.3 9.6 Mondi 13.48 6,545 0.9 2.5 2.0 1.0 2.2 3.1 3.7 11.0 12.0 11.5

Indices ISEQ performance

% Price 1 Day 1 Week 1 Mth Ytd 7,000

ISEQ 6,284.43 -0.39 0.96 -1.24 -7.47 6,800 FTSE 100 6,146.05 -0.47 0.65 -0.11 -1.54 6,600 DAX 30 9,794.64 -1.71 -0.58 0.80 -8.83 6,400 CAC 40 4,322.24 -1.43 -0.17 -1.92 -6.79 6,200 FTSE Eurofirst 300 1,306.69 -1.50 -0.79 -1.97 -9.10 6,000 Nasdaq 4,914.54 0.92 2.95 4.80 -1.85 S&P 500 2,072.78 0.63 1.81 4.77 1.41 5,800 Dow Jones 17,792.75 0.61 1.58 5.50 2.11 5,600 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Nikkei 225 16,164.16 -3.55 -4.93 0.49 -15.08

Exchange Rates

Current Px 1 day Px 1 Week Px Dec15 Avg Ytd

Stg/€ 0.800 0.793 0.789 0.737 0.771 STOXX 600 performance US$/€ 1.135 1.140 1.116 1.086 1.103 CHF/€ 1.092 1.091 1.090 1.087 1.095 420

JPY/€ 127.501 128.080 125.757 130.676 127.015 400

Bonds 380

Yield 1 Day Yld 1 Wk Yld 1 Mth Yld 3 Mth 360

US 2 Yr 0.73 0.01 0.73 -0.11 -0.32 340 US 10 Yr 1.77 0.00 -0.13 -0.05 -0.50 320

UK 2 Yr 0.42 -0.03 -0.06 0.06 -0.21 300 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 UK 10 Yr 1.41 -0.01 -0.05 0.01 -0.55

BD 2 Yr -0.48 0.01 0.01 -0.48 -0.13

BD 10 Yr 0.13 -0.02 -0.05 0.13 -0.50

Irish 10 Yr 0.72 -0.01 -0.09 -0.18 -0.42

Commodities FTSE 250 performance

% Current 1 day 5 day 1 Mth 1 Yr Brent (ICE $/bbl) 38.67 -2.35 -4.38 5.05 -32.28 18,000 Gasoline (NYM $/Gal) 1.40 -3.12 -4.39 7.53 -22.36 17,500 Heat Oil (NYM $/Gal) 1.13 -4.54 -6.47 2.93 -35.22 17,000 Nat.Gas 1.96 -0.15 8.31 12.28 -24.91 Gold $/oz 1,213.60 -1.89 -0.61 -1.85 1.39 16,500 Silver $/ozt 15.38 - 0.65 2.60 -7.13 16,000

Copper U$/MT 4,880.00 0.50 -1.03 3.26 -18.93 15,500

Wheat $/BU 4.76 0.48 2.75 6.67 -9.98 15,000 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16

Source : FactSet

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