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Today ’s Newsflow Equity Research 14 Jan 2021 08:30 GMT Upcoming Events Select headline to navigate to article
Great Portland Estates Improved rent collection and solid Company Events lettings performance 14-Jan Hays; Q221 Trading Update Taylor Wimpey; Q4 Trading Update Taylor Wimpey A clear focus on the medium-term Tesco; Q321 Trading Update Whitbread; Interim results Bakkavor Group Resilient FY20 performance leading to a 21-Jan J D Wetherspoon; Q221 Trading Update c.13% upgrade Hilton Food Group Strong FY20 trading update leading to mid-single digit upgrades 888 Holdings Post close statement outlines that positive momentum continues; another FY20 upgrade UK Economic View House prices remain red-hot, but hangover is now in sight after recent boom Building Materials Geberit - Strong Q420 beat gives encouraging read for broader sector Economic Events Ireland Irish Banks November credit stats show momentum from 14-Jan CPI Dec20 Q3 continued 15-Jan Trade Balance Nov20
United Kingdom 15-Jan Construction Output Nov20 Trade Balance Nov20 Industrial Production Nov20 Manufacturing Production Nov20 20-Jan CPI Dec20 PPI Dec20 Retail Price Index Dec20
United States
Europe
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Great Portland Estates Improved rent collection and solid lettings performance
Great Portland Estates (GPOR:LN) issued a trading update this morning covering the three Recommendation: Hold months to the end of December. The update shows that GPOR collected 69% of December Closing Price: £6.39 rent collected to date (or 77% when including amounts covered by rent deposits). This is a stronger collection rate that previous quarters in 2020 and compares to 63% in the March Colm Lauder +353-1-641 6042 quarter, 58% in the June quarter, and 65% in the September quarter. Following similar [email protected] patterns across the London market, rent collection was highest for office units at 84% and weaker for retail/leisure sectors at 35%.
GPOR also updated on the collection of arrears noting that 85% of March, June and September rent is now collected when including drawn deposits or 75% excluding deposits. Elsewhere, GPOR notes that leasing trends have remained positive, despite the challenges in the wider market, with £2.4m of new annual rent signed in quarter. Encouragingly market lettings are noted as being in line with pre-COVID impacted March 2020 ERVs.
GPOR’s balance sheet also sees the strong positioning continue, despite some value falls in the market, with LTV amongst the lowest in the REIT sector at 18.2% and considerable financial capacity of £441m to explore opportunities in the London market.
This is a solid update from GPOR. It has continued to let space at healthy ERVs, despite the moribund wider occupier market, and rent collection trends have improved. Furthermore, the defensive balance sheet will provide firepower to take advantage of opportunities as London emerges from the COVID (and Brexit) confidence hits.
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Taylor Wimpey A clear focus on the medium-term
Taylor Wimpey released a solid trading update this morning. For us the key points are: i) Recommendation: Buy FY20 numbers expected to be line with market expectations; ii) Orderbook remains elevated Closing Price: £1.61 with the group over 50% forward sold and the cancellation rate has normalised; and iii) The focus on the medium-term and confidence in the delivery of 21-22% margins. Shane Carberry +353-1-6419118
[email protected] Taylor Wimpey completed 9.6k units (-39% yoy), in line with our expectations. Pricing was 7% ahead yoy but this was “mostly” driven by mix. From an operating profit perspective, it
expects 2020 to be line with consensus which stands at £293m (incl JV profits). We are at £296m and we are unlikely to move.
The orderbook remains elevated versus historic levels with the value at £2.7m (+23% yoy) and units at 10.7k (10% yoy) leaving the group 50% forward sold for 2021. From a sequential perspective, this has run down from the £3bn / 11.5k units reported on November 1st, a function primarily of the high level of completions late in 2020. Cancellations had been a concern in previous updates with the rate at 20% in 2020 versus 15% in 2019, however, the cancellation rate normalised in Q4 at 16% which is the same as the prior year. It is also comforting to see that Taylor Wimpey is taking a strong level of reservations under the new help to buy scheme with 650 reservations reported under the scheme for delivery in Q2. Build cost inflation has remained low versus recent years and the group are not experiencing any “significant” supply chain issues as a result of Brexit.
It is evident throughout the statement that the medium term is a key focus for management. It is expecting operating margins can trend towards 21-22% over that period. For context the operating margin was 19.6% in 2019. Management also expect that the land acquisitions it has made following the June equity raise (£1.3bn gross land purchases have been authorised since) will start to contribute to volume growth above and beyond normal levels (15.5k units in 2019) in 2023 onwards.
Overall, we believe it is a solid update from Taylor Wimpey. We do not intend on moving numbers materially but the focus on the medium may provide some food for thought on 2023 and beyond.
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Bakkavor Group Resilient FY20 performance leading to a c.13% upgrade
Bakkavor has released an extremely encouraging trading update for the 52 weeks ending 28 Recommendation: Buy December 2020. From a top line perspective, Bakkavor notes that Group revenues continued Closing Price: £0.82 to recover over the course of H2'20 (LFL revenues for FY20 -4.9%, H1 -5.2%, H2, -4.6%), with the US being a standout performer. With cost mitigation measures together with an Jason Molins +353-1-641 9141 improving trend in volumes during the second half, management expect to deliver adj. [email protected] EBITDA (pre IFRS 16) of £138m (in line with FY19) comfortably ahead of our forecast for £122m.
The UK delivered FY20 LFL revenue declines of -5.3% implying a H2 outcome of -6.1%. This is a touch ahead of forecast despite the impact of further restrictions in the final quarter. Within the International division (c.12% of Group revenues) the US business delivered a strong performance with 12.7% LFL growth in the year, with profitable growth achieved in H2. This helped offset a weaker performance in China which has been impacted more severely by the pandemic (revenues -21.6%).
Given the challenging backdrop facing the business, we consider this a reassuring update from Bakkavor. The improving trends in H2 together with good cost control is leading to a c.13% upgrade to our forecasts. It is also worth noting that a strong focus on cash has enabled the business to operate with c.£200m of headroom against debt facilities of £537.5m.
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Hilton Food Group Strong FY20 trading update leading to mid-single digit upgrades
Hilton Food Group provided a strong FY20 trading update this morning indicating that the Recommendation: Buy outcome for the year was ahead of expectations. The business delivered strong sales and Closing Price: £11.30 volume growth over the year driven by continued business expansion, predominantly in Australia, as well as the shift to at-home consumption due to COVID-19. The trading outlook Jason Molins +353-1-641 9141 for the Group remains positive, with growth prospects underpinned by the already [email protected] announced expansion plans in Belgium and New Zealand, both of which are on track, and further expansion opportunities into adjacent categories across existing markets. In addition,
the Group continues to explore other opportunities to grow the business in both domestic
and overseas markets. This document is intended for the sole use of Goodbody Stockbrokers and its affiliates
Overall, this is another strong update this morning from Hilton. We currently forecast c.15% and 11% EBIT growth in FY20 and FY21 respectively though following today’s update we expect to upgrade estimates by mid-single digits.
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888 Holdings Post close statement outlines that positive momentum continues; another FY20 upgrade
888 has this morning released a brief trading update in which it states that it continued to Recommendation: Buy deliver a strong performance to the end of the year. This update comes in advance of its sell Closing Price: £3.03 side webinar event later today on product innovation. The statement this morning notes that revenue and active customer numbers in the month of December were all-time monthly Gavin Kelleher +353-1-641 0423 records. The group had updated the market with a very positive trading update on December [email protected] 2 (we upgraded FY20 EBITDA by >50%). This morning’s update states that the FY20 revenue and EBITDA outcome will be moderately ahead of prior expectations. The group re-
iterates the drivers of its performance are (i) increased customer acquisition that began in 2019; (ii) new product launches; and (iii) the retail to online migration that has been seen in 2020. For 2021, the group notes that it has entered the year with good momentum, but it again outlines headwinds of macro weakness and regulatory uncertainty in some regions.
Following the update on December 2nd, we updated our FY20 EBITDA forecasts to $151m (or $158m before US losses), meaning EBITDA was 73% higher than what it was at the start of 2020. We expect to increase FY20 by c3% post todays update. On FY21, we would already outline that we have factored in the impact of headwinds, with our EBITDA down yoy (EBITDA $149m or $132m post US losses). We are inclined to leave FY21 broadly unchanged at this stage, but the bias to numbers remains firmly to the upside. We continue to like the 888 investment case due to (i) its proprietary technology platform and product; (ii) exposure to a wide range of online markets; (iii) strong customer acquisition seen in 2019 & 2020 which underpins future growth; (iv) its increasing US optionality; (v) it remains on an undemanding valuation; and (vi) its potential to take part in sector M&A. The sell side webinar later today is likely to offer further insight into the product and technology strength the group has. We re-iterate our BUY recommendation.
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UK Economic View House prices remain red-hot, but hangover is now in sight after recent boom
After the boom following the end of the first lockdown, the UK housing market looks poised Dermot O’Leary to enter a slower period in the coming months, reflecting factors such as the ending of the +353-1-641 9167 [email protected] stamp duty waiver, a change to Help-to-Buy and the most recent spike in the virus.
The December RICS survey shows that price growth continues to be rapid and widespread, with the headline balance at +65 in December (+66 in November). However, price expectations are now negative, with the balance at -13 in December, its worst level since last May. While demand remained strong in December, evidenced by a positive new buyer enquiries balance of +15, this was also the lowest since May 2020, and sales expectations are now in negative territory too. The dichotomy between current buoyant conditions and expectations of weakness in sales and prices is evident across most regions of the UK.
We have been flagging this weakness for some time, so should not come as too much of a surprise. In hindsight, the stamp duty cut announced in the aftermath of the start of the pandemic was a mistake. It boosted demand but it has not proved necessary. It remains to be seen whether the expected weakness will only be temporary, reflecting the cliff-edge at the end of March. Our UK housebuilding team assumes underling price declines, but given strength of forward order books, the weaker pricing dynamics will only impact on numbers in the latter part of 2021 and into 2022.
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Building Materials Geberit - Strong Q420 beat gives encouraging read for broader sector
Geberit has released a Q420 trading update highlighting a strong finish to the year. Q420 lfl David O’Brien sales increased by 6.8%, a strong beat compared to consensus which has translated into +353-1-641 9230 Q420 group EBITDA of CHF 199m representing a 20% beat compared to consensus. david.a.o’[email protected]
Robert Eason Regionally, Geberit has reported strong performances in Germany (lfl sales +13% in Q420 vs +353-1-641 9271 12% in Q3), Switzerland (+8.6% Q4 vs 6.8% in Q3), the Far East (+16.1% Q4 vs -7% in [email protected] Q3) and America (+12% Q4 vs +6.2% in Q3). Performance was more muted in Iberia (- 4.4% vs +7% in Q3) and UK/Ireland (+3% vs +3% in Q3). Management notes that group Shane Carberry +353-1-6419118
EBITDA margin will come in at c.31% for FY20 as positive top line performance, lower This document is intended for the sole use of Goodbody Stockbrokers and its affiliates [email protected] marketing travel costs and lower raw material prices aided profitability.
Dudley Shanley Overall this is an encouraging set of numbers from Geberit which points to a very +353-1-641 9174 solid end to the year for construction markets in Europe and North America. [email protected] Indeed, it follows a similarly reported strong close to the year from Saint Gobain last week.
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Irish Banks November credit stats show momentum from Q3 continued
The Central Bank published November credit statistics yesterday. On the retail side, new Eamonn Hughes mortgage rates stood at 2.79% in November, -11bps yoy, though flat month on month. Most +353-1-641 9442 media commentary reflects the fact that Irish rates compare to the 1.31% average mortgage [email protected] rate in Europe, though in the past we have noted the higher capital requirements and RWA Barry Egan density (2.5x EU average) at the Irish banks. In terms of volumes, the recovery in new +353-1-641 6059 mortgage lending, which commenced in September, continued into November, with new [email protected] mortgage lending +10% month on month and +1% yoy. Moving to business lending, overall lending by non-financial corporations was actually up 7% yoy, the first positive yoy print
since April, though it was a bit of a mixed bag. New business loans <€250k were marginally
positive, loans from €250 to <1,000k were c.35% lower, but large loans (>€1m) were up c.20% (and have higher weighting overall). Moving to deposits, interest rates on new household term deposits were unchanged at 2bps whilst new term business deposits dropped 2bps to -23bps in November.
Broadly speaking, the trends in November are as anticipated and show that the Q3 momentum continued. We won’t build a single month print on positive yoy business lending into a trend just yet (particularly since it was due to large corporate loans which can be lumpy), but it’s helpful to see all the same. On the rates side, mortgage rate reductions last summer continue to feed through, though there’s also progress (for the banks) on lower deposit rates. Also, recently, investors have been watching rate move expectations, particularly in the US. The euro swaps curve over the past 4 weeks is +2-5bps out to 5-year duration and +7- 9bps out beyond 15 years. However, its been a more dramatic move in the US (Democratic majority, reflation etc), with the USD swaps curve +2-10bps out to 5- year duration and +25bps beyond 15 years, so higher and steeper. Over the past month, EU banks are +3.5%, but US banks +15%, so just shows you how sensitive the banks are to rates expectations even against the backdrop of harsher than anticipated lockdowns. So we suspect the banks will be recalibrating their rates sensitivity tables when they report FY20 numbers in a few weeks time. Back in June, BOI noted very 100bps move in rates higher added c.€250m to NII (based on some certain simplistic assumptions), whilst AIB noted €234m. A few figures to have at the back of your mind should the rates backdrop in Europe become a bit more dramatic.
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