Morning Wrap Today ’s Newsflow Equity Research 11 Aug 2020 09:46 BST Upcoming Events Select headline to navigate to article Cairn Homes Order book and WIP investment underpin Company Events FY20 & FY21 forecasts 11-Aug Cairn Homes; Q220 Trading Update Derwent London; Interim Results Bellway Slower than expected ramp-up will impact gross Derwent London; Q220 Results Domino's Pizza Group; H1 Prelims margins Gamesys Group; Q220 Results ARYZTA Sales improve further in July, liquidity remains IPL Plastics; Q220 Results robust S & U; Q220 Results 12-Aug Glanbia; Q220 Results Domino’s Pizza Group – Solid H1 in the face of COVID Wienerberger; Q220 Results 13-Aug GVC Holdings; H1 Results but retain medium term caution 14-Aug Yew Grove REIT; HY Results 17-Aug Cranswick; Q121 Results Codemasters Group Strong Trading Update with material 18-Aug Persimmon; Q220 Results upgrade Derwent London H1-20 Results Irish Banks Minister hints at possible additional support for SMEs in October budget Economic Events Ireland UK Diversified Financials SUS trading update – 13-Aug CPI Jul20 readacross for PFG/CBG/OSB 14-Aug Trade Balance Jun20 UK Banks Cost trimming in focus at TSB and Shawbrook United Kingdom 11-Aug ILO Unemployment Rate Jun20 12-Aug Consturction Output Jun20 GDP Q2 Trade Balance Jun20 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 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 Cairn Homes Order book and WIP investment underpin FY20 & FY21 forecasts Cairn Homes has issued a trading update for the six month period ended June 30th. In the Recommendation: Buy period the group has sold 207 units, ahead of the c.170 units which we had been estimating. Closing Price: €0.83 Revenue of €81m (which includes €11m from land sales) was generated implying an ASP of c.€338k (c.€336k in H119 ex Six Hanover Quay). To that end, it is positive to see that post Robert Eason +353-1-641 9271 lockdown “selling prices are broadly in line with pre COVID-19 levels” and so any movement [email protected] in ASP has been driven by mix. Additional COVID related costs led to a leg down in gross margins to c.16% in H120 (vs 18.6% in H119) but it is comforting that management note this negative impact on gross margins “will not sustain into future periods”. Ultimately this translated into an operating profit of €5.6m for the period. It is encouraging to see that “despite the significant headwinds faced around production capacity and sales” the group remained profitable during the period. One of the key positives from the statement is that at the early stages of H220 the order book (including completions to date) for FY20 now sits at 670 units leaving our forecast for 700 units very well underpinned. In addition, there are already a further 300 units anticipated to close in FY21. Indeed in total the forward order is now 970 units, a significant increase (107 units) on the 863 units which were in the order book as of May 13th. Cairn’s balance sheet strength is once again to the fore in this statement with management noting a gross cash position of c. €155m, broadly flat on the gross position as of May 13th. This financial strength and flexibility has provided scope for a €55m increase WIP investment since May 13th, clear evidence that the group are focused on being able to deliver in FY21, not just FY20. Indeed, we believe such firepower will allow for continued market share gains. As of June 30th the group’s net debt stands at c.€187m an increase of c.€95 reflective of the increased WIP investment (c.€55m), the share buyback scheme (c.€24m) and 1 site acquisition at Clonburris. Overall this is a comforting statement from Cairn Homes. We believe the delivery to date and the forward order book underpins not only our FY20 forecast at this early stage in the year but also gives comfort on FY21 forecasts. In this context, the investment in WIP is particularly comforting and highlights the benefits of Cairn’s balance sheet strength. Whilst we are not moving our numbers on the back of this morning’s update, we believe that the bias is now to the upside. Today’s update once again illustrates why we believe that the discount to NAV which Cairn trades at is unwarranted. This document is intended for the sole use of Goodbody Stockbrokers and its affiliates Home… Page 2 11 Aug. 20 Goodbody Morning Wrap Bellway Slower than expected ramp-up will impact gross margins Bellway issued a full year trading update for the financial year to the end of July. The key Recommendation: Buy points for us are as follows: Closing Price: £25.65 Completions were down 63 in H2% – Completions were 7,522 in FY20 (-31% yoy) Shane Carberry +353-1-6419118 implying an outturn of 2,201 in the second-half of the year (-63% yoy). This is a touch [email protected] behind peers over a similar period (Persimmon -35%, Taylor Wimpey -57%, Barratt Developments -55%, Redrow -57% and Vistry -63%) as well as our forecast (-56% in H2) despite Bellway having the benefit of an extra month post lockdown given the July period end. It is also noteworthy the update implies sales in June-July were -75%. Pricing remains firm – The commentary on pricing is consistent with the rest of the sector and the HPI data from various providers, “selling prices have remained firm”. Sales rates disappoints - Sales offices in England re-opened on the 1st of June. The net reservation rate since June was c.100 per week which is a slight pick up from the net reservation rate of 71 homes per week in the ten weeks to the 31st of May but it is materially lower than the Q4 FY19 rate of 231 per week. The forward order book at the end of July was £1,760m (43% yoy) or 7,522 homes (35% yoy). This is up significantly yoy and sequentially from £1,568m (-4.6% yoy) or 6,038 homes (-4.3% yoy) at the end of May. Build rates are improving slowly – The build rate is improving, it is now approaching 80% of pre-COVID levels. This is at the lower end of build rates for peers and the slow ramp up to full production levels will have an impact on gross margins over the next few years. Given the higher costs there are several land deals which were suspended due to COVID which management will assess whether or not they “remain financially viable”. Given Bellway’s relatively shorter landbank compared to peers this is a concern. Liquidity is improving - Net debt at the end of May was £157m, with c£100m of outflows guided on supplier payables in June and committed land obligations in June and July. Solid cash generation has seen the company move to a slight net cash position which is slightly better than our expectations. Cladding issues - The statement includes a note that Bellway has several developments which obtained building regulation approval where cladding was used. Bellway has continued to work with partners in relation to the fire safety of these schemes. Bellway is undertaking This document is intended for the sole use of Goodbody Stockbrokers and its affiliates further assessments which will likely result in additional expense the FY21. This is a softer than expected update from Bellway. Completions since lockdown are behind expectations and peers’ performance albeit the order book strength suggests demand is still very strong and underpins FY21 completions to a large degree. The slower ramp up of production capacity will impact gross margins which we will have to review in forecasts (our current FY20 forecasts for gross margins of 22.5% vs consensus at 22.3%). The suggestion that some sites may not be financially viable and the cladding issue will be concern. The better than expected balance sheet position is a welcome positive. Overall we feel the update is weaker than we would have anticipated and the stock will be lower today. Home… Page 3 11 Aug. 20 Goodbody Morning Wrap ARYZTA Sales improve further in July, liquidity remains robust Aryzta released an unscheduled trading update this morning, highlighted a continued Recommendation: Hold improvement in organic revenue for month of July at -18%. This compares to -23% in June, Closing Price: €0.56 -36% in May and -49% in April. Aryzta continues to manage production to match demand and it continues to expect a bumpy recovery in coming months. Currently, Aryzta has c.14% Jason Molins +353-1-641 9141 of staff furloughed vs. c.30% on 30/4/2020. [email protected] Trends by region are broadly similar, with weakness in Foodservice partially offset by strength in QSR and Retail. North America continues to track ahead of other regions, with revenues -15% in the month though performance is volatile by state depending on restrictions. Europe and Rest of World were both -20% in July.