Morning Wrap

Today ’s Newsflow Equity Research 06 Oct 2015 Upcoming Events Select headline to navigate to article

Economic View House prices now falling in Dublin Company Events 06-Oct easyJet; September 2015 Traffic Stats Norwegian Air Shuttle; September 2015 Traffic Stats Air France-KLM Day 1 of détente? 07-Oct SAS; September 2015 Traffic Stats Tesco; Q2 2016 Results 08-Oct Air France-KLM; September 2015 Traffic Stats Mondi; IMS easyJet Good September traffic but FY15 outrun suggests Mondi; Q3 2015 Results lower ROCE yoy 09-Oct Lufthansa; September 2015 Traffic Stats

IAG September traffic stats a little disappointing but okay

Dalata Hotel Group In discussions on up to seven sites in Dublin

Economic Events CBI opposition to Ava Trade acquisition to be legally challenged 08-Oct CPI YoY

United Kingdom Greencore Positive Q3 trading statement from United States 08-Oct Initial Jobless Claims

PetroNeft Tempering investment and growth expectations Europe 13-Oct ZEW Survey Expectations

UTV Media CMA approves sale of Juice FM

FBD Holdings Appointment of interim CFO; date of EGM; flood damage relief?

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 Bank of Ireland. 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 House prices now falling in Dublin

What a difference a year makes in the Irish housing market. A year ago, the Dublin market Dermot O’Leary +353-1-641 9167 was booming, with asking prices rising at an annual pace of over 20% and asking prices [email protected] outside the capital rising by a modest 2%. According to the latest report from Daft.ie this morning, this has been completely turned around, with annual price inflation in Dublin falling to just 2% in Q3, while prices outside the capital are rising by 13% yoy. In fact, Daft.ie reports that prices actually fell by 1% in Q3, with three areas within Dublin, particularly at the higher end of the market, seeing annual price declines.

Two key factors are at play here. Firstly, the stock of properties for sale has risen in the capital over the past year; the average stock for sale is 4,100 for the first nine months of 2015, up 46% yoy. This has contributed to an increase in the average time to sell. The stock for sale outside the capital fell over the same period. In Munster, for instance, the stock for sale is down nearly 20% over the past year.

The second reason for the slowdown in Dublin is the macro prudential rules. These effectively tie house prices to incomes, while the LTV rules will have a bigger impact in Dublin given the higher prices.

There have been some calls recently to ease mortgage rules introduced by the Central Bank earlier this year. For us, it is way too early to assess what the lasting impact of these rules are. Estate agents believe that the slowdown in Dublin started prior to the announcement of the rules. After the short-term impact, their introduction should ensure sustainable increases in prices in the medium-term.

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Air France-KLM Day 1 of détente?

Air France management issued a formal statement yesterday regarding its alternative cost Recommendation: Hold saving plan. It targets a headcount reduction of 2,900 people - 300 pilots, 900 cabin crew Closing Price: €6.11 and 1,700 ground staff. Where possible, the company will implement VDPs, but does not rule Jack Diskin out forced redundancies. Rolling implementation of these measures will begin in 2016. +353-1-641 9193

[email protected] Air France's long-haul fleet will be scaled back by 14 aircraft, with older A340s no longer being replaced by newer B-787s. The plan comprises route closures and lower frequencies, primarily on routes to Asia and the Middle East, where losses are highest. At a Group level, capacity in its passenger business should fall by around 2% between 2015 and 2017, compared with a previous expectation of around 3% growth.

In response to this, SNPL union president Philippe Evain said the union was ready to make a new proposal to Air France management. Air France reports that no new talks have been scheduled with the union. Continued dialogue is more favourable than rolling strikes only if the company does not make key concessions. It is imperative that management does not backtrack on the need for pilot pay freezes and increased flying hours, which are crucial to ensure a competitive product versus its long haul peers.

Without these agreements, its medium term cost targets look beyond reach. Structurally, though, we believe the removal of loss-making capacity and costs from the network would be the most favourable outcome. This is in spite of the fact that the uncertainty in the immediate term from labour disruption - and the heavy risk to FY15 financial targets - would be a significant near-term overhang.

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easyJet Good September traffic but FY15 outrun suggests lower ROCE yoy

September traffic was in line with expectations, with passenger growth of 7.6% to 6.61m, Recommendation: Hold seat capacity up 6.6% to 7.1m and load factor up 0.9ppt to 93.1%. Closing Price: £18.08

Mark Simpson These numbers wrap easyJet’s fiscal year to September 2015. With full year pax of 68.6m, +353-1-641 0478 up 6% on FY14, seats at 75m, up 4.9%, and load factor at 91.5%, up +0.9ppt, these are in [email protected] line with our forecasts.

The company also reiterated its revised FY15 pre-tax guidance range of £675-700m as given at the start of September. As such, other than confirming that summer trading across Europe was strong, we don’t see any new action points in these specific numbers.

However, we would point out that while our forecasts for the likes of Ryanair, Wizz and IAG all have a significant step up in ROCE over their current trading periods, our £694m pre-tax forecast for easyJet gives a ROCE of 19.5% as against the 20.5% achieved in FY14. Additionally, our FY16 numbers forecast an additional step down in ROCE to 18.7%.

Given that we think a company’s ROCE drives share price performance, the September stats would lead us to reiterate that we see better potential for investors in other airline stocks in the sector. Our fair value price for easyJet remains unchanged at £17.75.

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IAG September traffic stats a little disappointing but okay

Headline traffic numbers included Aer Lingus and saw September RPKs up 13.9% yoy, ASKs Recommendation: Buy up 13.7% and load factor was up 20bp to 84.7% on a reported basis. However, pro-forma Closing Price: £5.85 RPKs were up 4.7%, ASKs up 4.4% and load factor was up 0.3ppt to 84.5%. Mark Simpson

+353-1-641 0478 These numbers looked slightly disappointing, with North America seeing some further [email protected] slowdown, with proforma passengers down 1.2% yoy in September vs a fall of 0.7% in August. Additionally, premium traffic growth was only 1.6% yoy vs the +8.7% seen in both

July and August. Finally, there has been a downward shift in momentum on South American growth (with Latam pax up 6.1% in September vs 17.7% in August) reflecting harder comps given the step-up in capacity seen last year.

However, with that said, the trends are well within the tolerance of our €2.3bn operating profit forecast for this year and against current guidance of €2.2bn. More importantly, we think the scope for future profits growth from operational leverage, new revenue streams and new group cost cutting measures to be announced will drive returns substantially higher over the next two years. As such, we retain our Target Price of £9.45.

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Dalata Hotel Group In discussions on up to seven sites in Dublin

According to press reports this morning, Dalata is in discussions on six or seven sites in Recommendation: Buy Dublin for new hotel development. Management are expecting the bidding process to be Closing Price: €4.32 highly competitive on these sites especially those suitable for offices or residential Kevin McDermott development. In addition to new development, Dalata will also look to acquire hotels from +353-1-641 9162 NAMA and Ulster Bank’s Project Coney portfolio which includes c.25 hotels. [email protected]

There has been a lack of new supply of hotel rooms in Dublin since 2007, and as

Ireland’s largest hotel operator Dalata are obviously going to be interested in filling the shortage. Following the approval of its €160m capital raise yesterday, we estimate that management has €250m (including debt) to invest in a mixture of new hotel developments (1-2 new hotels), acquisition of existing hotels and capital projects in its existing portfolio.

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Playtech CBI opposition to Ava Trade acquisition to be legally challenged

Following on from yesterday’s announcement that the Central Bank of Ireland (CBI) had Recommendation: Buy raised its opposition to Playtech’s acquisition of AvaTrade on Friday, Playtech has released a Closing Price: £8.07 further update this morning. The CBI has clarified its position to Playtech’s Irish legal Gavin Kelleher advisors. Playtech intends to formally challenge the decision. +353-1-641 0423

[email protected] The exact concerns that the CBI have raised regarding this deal have yet to be released. Given Playtech has launched a legal challenge, its ability to acquire

AvaTrade, or the potential timetable for any deal completion is now unknown. For this reason we are going to remove any contribution from AvaTrade from our numbers. We had AvaTrade contributing €4.5m EBITDA in FY15 (c.2% of group) and €18.4m EBITDA in FY16 (4.6%).

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Greencore Positive Q3 trading statement from Greggs

Greggs said this morning that its own shop lfl sales increased by 4.9% in Q3, slightly lower Recommendation: Buy than the 5.9% attained in H1, but described by the company as being “slightly ahead” of its Closing Price: £3.01 expectations. Factors driving the growth include initiatives to develop business across the Liam Igoe different day parts. A relaunch of products ahead of winter, including hot sandwiches, should +353-1-641 9450 underpin progress in the coming quarters. The company expects market conditions to remain [email protected] favourable until the year-end with low cost pressures and a stronger consumer environment, though wage pressures will be a feature from 2016. Growth for the year is now expected to be slightly ahead of its previous expectations.

Greencore has also been delivering strong lfl growth in the UK, despite difficult yoy comps. Initiatives, such as new product development and servicing all day-parts, which have been helpful for Greggs will also feature within Greencore. We expect Greencore’s lfl growth for FY15 in UK to Go, including new business wins, to be over 9% for the year.

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PetroNeft Tempering investment and growth expectations

Despite prior production setbacks, which forced the sale of a 50% stake in Licence 61 to Oil Recommendation: Hold India, hindsight would suggest that the move was fortuitously timed in that it re-balanced Closing Price: £0.04 the model (debt elimination, funds to further growth) ahead of the oil price decline. That Gerry Hennigan said, a realised H1’15 average price of just $29.9/bbl and with $41.5m of the $45m Oil India +353-1-641 9274 carry spent as of June, growth and investment expectations will likely be tempered pending [email protected] an upturn in pricing.

Reflecting the above, we lower FY15 average gross production from 2.8 kbopd to 2.4 kbopd. Further out, higher capex in 2016, the pull-through of lower production from 2015 and the potential deferment of the Sibkrayevskoye development (53 mmbbls 2P gross) until 2017, lowers core NAV from 7.2p to 5.8p. In terms of near term projections, we anticipate a broadly neutral EBITDA outcome for FY15 & FY16 as lower costs serve to counteract lower revenue (based on $55/bbl in FY15, $60/bbl in FY16).

With net cash of $2.6m as of June, PetroNeft has the distinct advantage that it can cut its investment cloth to suit the oil price environment. That, however, ensures a slower production trajectory and will likely heighten the focus on field decline rates, particularly those from recently drilled horizontal wells. Add in speculation, albeit unconfirmed, that the Russian Government is reviewing tax extracted from the industry and our preference is to maintain our Hold recommendation with a price target of 5p aligned with core risked NAV.

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UTV Media CMA approves sale of Juice FM

UTV Media plc has this morning announced that the UK Competition and Markets Authority Recommendation: Buy (CMA) has approved the sale of Juice FM, to Global Radio Holdings Ltd. The group first Closing Price: £1.72 announced the sale of Juice FM in June for a consideration of £10m, which will now be Gavin Kelleher payable to UTV. Juice FM is the group’s Liverpool radio station which generated revenue of +353-1-641 0423 £2.2m and PBT of £0.4m in 2014. [email protected]

While we thought it was unlikely the CMA would have any concerns with this deal, the confirmation of approval is welcome and will strengthen UTV’s balance sheet.

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FBD Holdings Appointment of interim CFO; date of EGM; flood damage relief?

Pursuant to prior announcements, FBD has formally indicated that Cathal O’Caoimh, interim Recommendation: Restricted CFO, has retired, to be replaced on an interim basis by Paul D’Alton. Mr D’Alton, who joins Closing Price: €6.75 the executive management team, will be in the role for a period of approximately one year. Eamonn Hughes Mr D’Alton has extensive experience in senior financial roles and previously held the CFO role +353-1-641 9442 at Bank of Ireland from 1991-2001. Elsewhere, FBD has revealed the date of the EGM [email protected] (October 22nd) called to approve the related party transaction concerning the divestment of FBD’s stake in its joint venture, FBD Property & Leisure Limited.

In a slightly tangential discussion, we note press reports this morning of a High Court ruling yesterday that found the ESB (the State electrical utility) 60% liable for the €20m worth of flood damage caused to property at University College Cork in November 2009. ESB released water from two hydroelectric dams following heavy rainfall, which the university argued caused additional flooding in the area. The challenge was taken by Aviva, UCC’s insurer and is likely to open up the floodgates (forgive the pun) for other insurance companies to recoup damages from ESB for the floods in the Cork area. Reports pitch payments by the insurance industry at c.€90m for the Cork floods (thus Aviva was c.35% of the exposure), though any challenges to the ESB is likely to see the State utility rely on its own insurance policies to cover any liability.

FBD noted in its 2009 results the negative impact on the industry of severe weather claims as a result of flooding in November 2009. As such, there may be some relief in due course from this court ruling, though we appear to recollect that FBD’s exposure to the Cork floods was modest. 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 2015f 2016f AIB Group 0.07 38,739 -1.3 -5.1 -7.5 -6.3 -4.2 -9.6 -8.8 -10.5 24.0 27.0 CRH 23.76 19,376 2.9 -0.4 -6.2 19.4 -0.1 -5.1 -7.5 14.1 21.2 13.0 Ryanair 13.46 18,634 4.6 1.2 5.1 37.3 1.6 -3.6 3.5 31.2 13.1 15.0 IAG 5.85 11,882 2.4 -0.3 3.5 20.2 -0.6 -5.0 1.9 14.9 11.1 7.9 Wolseley 37.46 9,742 1.9 -10.4 -10.1 1.6 -0.7 -14.6 -12.2 2.1 15.6 14.2 Kerry Group 67.83 11,925 2.1 3.4 6.3 18.9 -0.9 -1.4 4.8 13.6 22.6 20.7 Bank of Ireland 0.36 11,658 4.0 5.6 3.4 15.0 1.0 0.6 1.9 9.9 11.3 11.8 easyJet 18.08 7,124 3.4 2.1 3.5 8.2 0.8 -2.7 1.2 8.7 13.0 12.2 Mondi 14.36 6,973 3.6 5.6 -2.0 36.8 0.6 0.6 -3.4 30.7 13.9 12.6 19.80 4,891 1.5 -1.8 - 6.6 -1.1 -6.4 -2.3 7.1 15.7 13.4

Indices ISEQ performance

% Price 1 Day 1 Week 1 Mth Ytd 7,000 ISEQ 6,266.21 2.87 0.70 -0.77 19.94 6,500 FTSE 100 6,298.92 2.76 5.71 4.24 -4.07 6,000 DAX 30 9,814.79 2.74 3.49 -2.22 0.09 CAC 40 4,616.90 3.54 5.96 2.07 8.05 5,500

FTSE Eurofirst 300 1,412.97 3.01 5.12 1.46 3.25 5,000 Nasdaq 4,781.27 1.56 5.22 2.08 0.95 4,500 S&P 500 1,987.05 1.83 5.59 3.43 -3.49 Dow Jones 16,776.43 1.85 4.84 4.19 -5.87 4,000 Oct-14 Jan-15 Apr-15 Jul-15 Nikkei 225 18,005.49 1.58 2.04 1.20 3.18

Exchange Rates

Current Px 1 day Px 1 Week Px Dec14 Avg Ytd

Stg/€ 0.739 0.742 0.738 0.776 0.728 STOXX 600 performance US$/€ 1.121 1.128 1.121 1.210 1.115 CHF/€ 1.093 1.093 1.093 1.202 1.063 420

JPY/€ 134.858 134.432 134.379 145.079 134.796 400

Bonds 380

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

US 2 Yr 0.61 0.02 0.61 -0.10 -0.02 340 US 10 Yr 2.06 0.07 -0.04 -0.07 -0.32 320

UK 2 Yr 0.58 0.06 0.01 -0.03 -0.14 300 Oct-14 Jan-15 Apr-15 Jul-15 UK 10 Yr 1.68 0.08 0.02 -0.04 -0.34

BD 2 Yr -0.26 0.03 0.00 -0.26 0.00

BD 10 Yr 0.57 0.06 -0.02 0.57 -0.23

Irish 10 Yr 1.16 0.04 -0.06 -0.19 -0.42

Commodities FTSE 250 performance

% Current 1 day 5 day 1 Mth 1 Yr 18,500

Brent (ICE $/bbl) 49.25 2.33 1.82 -0.73 -46.65 18,000

Gasoline (NYM $/Gal) 1.34 - -1.85 -5.42 -43.60 17,500 Heat Oil (NYM $/Gal) 1.52 - -1.14 -4.77 -41.91 17,000 Nat.Gas 2.45 -0.04 -2.93 -7.72 -39.34 16,500 16,000 Gold $/oz 1,139.75 -0.09 2.31 1.92 -4.62 15,500 Silver $/ozt 15.25 5.68 4.10 3.81 -10.14 15,000

Copper U$/MT 5,144.50 1.25 1.01 -0.21 -22.81 14,500

Wheat $/BU 5.13 - 0.10 9.73 5.66 14,000 Oct-14 Jan-15 Apr-15 Jul-15

Source : FactSet

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