Morning Wrap

Today ’s Newsflow Equity Research 03 Jun 2021 08:35 BST Upcoming Events Select headline to navigate to article

tinyBuild FY20 Results Preview Company Events 04-Jun Derwent ; Interim Ex Div Building Materials Saint-Gobain - Upgrades coming 08-Jun Paragon Banking Group; Q221 Results following "very good trends" in April/May 09-Jun SSP Group; Q221 Results

Irish Economic View Tax revenues rebound as economy reopens swiftly Irish CCyB to remain unchanged until year end (at least); Central banks embracing climate risk UK Banks BoE Bankstats point to continued strong mortgage transaction activity

Economic Events Ireland 04-Jun GDP Q1 08-Jun Industrial Production Apr21 10-Jun CPU May21

United Kingdom 03-Jun CIPS Services PMI May21 04-Jun CIPS Construction PMI May21

United States

Europe

This document is intended for the sole use of Goodbody Investment Banking and its affiliates

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

Goodbody Stockbrokers UC, trading as “Goodbody”, is regulated by the Central of Ireland. In the UK, Goodbody is authorised and subject to limited regulation by the Financial Conduct Authority. Goodbody is a member of 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

tinyBuild FY20 Results Preview

tinyBuild will release FY20 results on Tuesday, June 8th. Our forecasts assume Revenue of Recommendation: Buy $35.5m, c. 27% growth y.o.y, and EBITDA of $14.6m, which are in line with consensus. Closing Price: £2.53 Undoubtedly, increased engagement during the pandemic is expected to deliver strong revenue momentum for older games. Our forecasts for FY21 and FY22 assume strong Patrick O'Donnell +353-1-641 6013 momentum on new title launches (25) versus 23 in company guidance. Key areas of focus on [email protected] results day are likely to include: (i) Progress with respect to key titles including HN2 update and FY21 update; (ii) Discussion on strength of M&A pipeline post IPO given strong cash

position.

The tinyBuild portfolio comprised 40 titles (end-FY20). The key franchise is HelloNeighbour which averages 40% of Revenue with the top 10 titles representing more than 93% of Revenue. The key catalyst behind strong revenue growth projections in FY21 and FY22 is a very strong pick up in new releases to end of FY22 including the highly anticipated HN2 launch expected before Christmas 2021.

We retain our premium 35x EV/EBITDA generating an unchanged PT of £3.15 and re-iterate our BUY recommendation. Given the strength of the IP launch window already announced, the business is well positioned to materially grow its revenue base, audience, and back catalogue. That could also be supplemented by a strong focus on M&A or acqui-hires in the case of TBLD. These catalysts are also underpinned by a conservative amortisation policy leaving limited impairment risk.

Home…

Building Materials Saint-Gobain - Upgrades coming following "very good trends" in April/May

Saint-Gobain released a short trading update this morning highlighting that group continued David O’Brien to see “very good trends” in sales in April and May. This was broad based regionally with +353-1-641 9230 strong RMI growth in Europe, “especially in France”, coupled with growth in construction david.a.o’[email protected] markets in both Americas and Asia. The group also notes that industrial markets have Robert Eason continued to improve sequentially. On the other hand, the worsening of the pandemic in both +353-1-641 9271 Brazil and India has negatively impacted those two regions. [email protected]

On balance the group states that H1 operating income should “clearly exceed the Shane Carberry +353-1-6419118 record level” achieved in the second half of 2021 . A record margin is also expected [email protected] in H1. For context, as per visible alpha, operating income was expected to be This document is intended for the sole use of Goodbody Investment Banking and its affiliates

€1.73bn in H121 versus €2.03bn in H220. That implies upgrades of at least 17% for Dudley Shanley H1. The group makes no comment on the FY as a whole but it is fair to assume the +353-1-641 9174 strength of the performance in H1 will lead to FY upgrades. Overall, Saint Gobain's [email protected]

update paints a positive backdrop for all global building materials companies. Kate McCarthy +353-1-641 9005 [email protected]

Home…

Page 2 03 Jun. 21 Goodbody Morning Wrap

Irish Economic View Tax revenues rebound as economy reopens swiftly

The AIB Services PMI surged to a five-year high of 62.1 in May from 57.7 in April as the Shaun McDonnell restrictions eased further and some pent-up demand continued to pour into the Irish +353-1-641 9127 [email protected] economy. Demand surged in the sector as new business (60) grew at its fastest rate since 2017. The services industry rebound is driven by domestic demand. It is notable that a number of firms linked higher export business to the receipt of new customers as a result of Brexit, something we have previously alluded to. All four sub-sectors contributed positively to the rebound. The Transport, Tourism & Leisure sector climbed further into expansion territory (>50) at the fastest rate of growth since last summer’s reopening. Employment in the services sectors also grew at its fastest rate since the onset of the pandemic. The Services sector is also experiencing significant input and output price inflation. Input prices rose to their highest level since 2008 while output prices saw their largest change in the inflation rate since 2019. Putting all this together with the index, the composite Output index is now at the highest level on record (the data began being collected in 2000) reaching 63.5 in May.

As activity picked up across the economy, the Exchequer accounts began to recover as income tax and VAT receipts exhibited a strong outperformance. Firstly, we note that a comparison to profile (expected levels) is more appropriate given the weak comparative of May 2020. Government tax receipts grew 8% relative to profile in the period. This was driven largely by a steep recovery in VAT receipts which came in 12.5% above profile as non- essential retail and personal services returned to society in May. In addition, there was continuing strength in income tax receipts (+10% vs profile). This we suspect is driven by a declining number of people in receipt of PUP as people returned to work in May. Higher wages are also playing a role (economy-wide wage growth of 6.5% in Q12021). Government spending continued to rise in May as the Irish Government continued to finance the recovery and welfare support schemes in a favourable borrowing environment. Total gross voted expenditure grew 4.5% yoy and totalled €33bn at month-end. This left spending 4% below profile. These trends meant a rolling 12-month Exchequer deficit of €12.2bn in May, an improvement on the c. €14.5bn posted in April.

It has been a long year for the Irish Services sector in particular, so it is comforting to see activity going beyond recovery, even before the wider reopening of the Irish economy. This is only the beginning of what will be a summer of expansion for the Irish economy, one we believe will be driven by spending in hospitality related sectors such as restaurants, pubs, and hotels as a second summer of staycations is

in the pipeline. This document is intended for the sole use of Goodbody Investment Banking and its affiliates

Home…

Page 3 03 Jun. 21 Goodbody Morning Wrap

Irish Banks CCyB to remain unchanged until year end (at least); Central banks embracing climate risk

The Central Bank yesterday published its Annual Report and Annual Performance Statement. Eamonn Hughes The CB generated a financial profit of €829.6m for 2020 and €666m was paid to the +353-1-641 9442 Exchequer. The Governor noted that the report sets out key activities at the bank to [email protected] safeguard monetary and financial stability. The bank worked closely with its EU partners to Barry Egan manage the pandemic, adding efforts for a more comprehensive macro-prudential +353-1-641 6059 framework, including for market-based finance. For the banks, he reiterated the commitment [email protected] to not increase the CCyB (countercyclical buffer) this year, leaving it at zero (was at 1% before the pandemic) and also namechecked the mandate to ensure the financial system is

resilient to climate related risks and new product/technological innovation.

There were no real surprises from the governor, but it is worth touching on a few issues given his commentary. The retention of the CCyB at zero until year end was already committed to by the CB, but with a 12-month lead-in when it is reintroduced. This means its effectively going to be 2023 at the earliest before the buffer returns. Clearly, post pandemic, the prudential regime needs to return back to normalised buffers, a process we think will be signposted when the ECB unfolds the dividend ban later this year. Our broad expectation is that in 2023 we also get a phase-in of a new SyRB (Systemic Risk Buffer) and it is possible that the O-SII (Domestically Systemically Important Buffer) goes up as the banks are now arguably even more systemically important once the Ulster Bank and KBC exits complete.

However, decomposing our CET1 targets for the banks, we already model these potential changes, so our 13% CET1 target for BOI looks appropriate as does our 14% level for AIB (main difference between the two of them is P2R is higher at AIB). On PTSB, we recently moved our CET1 target (in our note last week) to 14% to reflect the likely implementation of an O-SII buffer for it should it capture a chunk of Ulster Bank’s loan book compared to its current position of no O-SII buffer. As such, our estimate of a c.€500m capital raise if it takes a pro forma c.€8.5bn of Ulster Bank loans already incorporates this slightly higher CET1 target.

Elsewhere, we note the interview in the FT with France’s Central Bank Governor with Moral Money, tied with the Central Bank conference on Green Swans in which it is clear that Central Banks are embracing climate change (a consideration for the ECB’s ongoing strategy review) with the governor suggesting it is consistent with ECB’s mandate of financial stability and price stability, adding “if, as a financial institution, you don’t manage your climate- related risk and if as a supervisor, you don’t look at them [then] you miss your first duty — a

duty to financial stability”. On the question if climate risk will be incorporated into the capital This document is intended for the sole use of Goodbody Investment Banking and its affiliates requirements set for banks, the governor noted that “we are not there yet, but the first very important step is to adequately measure climate-related risk in the long run”. The Banque de France pilot stress test earlier this year highlighted transition risk as the main risk for banks, more so than physical risk but Central Banks will have to agree on a common stress test methodology.

Better climate related disclosures will come first from banks and we know from the EBA and ECB discussion papers in Q420 that regulators will be embedding ESG into strategy, governance and risk management. As we noted in our Leading the Charge note, CET1 demands may follow in time given the long tail transition & physical risks versus normal loan loss horizons. Loan book mix, governance and disclosure differences may see this emerge in Pillar 2 requirements rather than Pillar 1.

Home…

Page 4 03 Jun. 21 Goodbody Morning Wrap

UK Banks BoE Bankstats point to continued strong mortgage transaction activity

The BoE published its latest Bankstats for April 2021 yesterday. No doubt you’ll have caught John Cronin some of the main headlines at this stage, but we have prepared a summary of the key points +353-1-641 9187 below. [email protected]

Barry Egan Net mortgage borrowing was just £3.3bn in the month, down from the record £11.5bn in +353-1-641 6059 March. However, gross borrowing remained above levels seen since early 2020 meaning [email protected] transaction activity remained strong in the month - consistent with expectations. More importantly in a forward-looking context, mortgage approvals were +4.2% m/m for house

purchases (to 86,921) and +1.5% m/m in overall terms (including remortgaging, etc.)

pointing to continued strong transaction activity for May and beyond, with the stamp duty

holiday extension undoubtedly an important factor underpinning demand buoyancy. While the approvals numbers significantly beat consensus expectations for 81.0k, the broad trend is not surprising and is consistent with the expectations of bank executives communicated during the 1Q results season - the key question is how demand conditions will evolve post- SDLT relief (while we accept that there are structural factors supporting sustained strong demand, there will undoubtedly be a tapering from current levels). Interestingly, the effective interest rate on new mortgages fell 7bps m/m in April (though this does tend to fluctuate quite a bit on a monthly basis) while the average interest rate on the outstanding stock of mortgages was broadly unchanged at 2.07%.

Net repayments of consumer credit were £0.4bn in the month, representing a lower level of net repayments than we have seen in recent months (as the economy reopens) while the effective interest rate on new consumer loans remained low at 5.65%, compared to 7.03% in January 2020. Large corporates effected net repayments of £4.8bn in the month and net borrowing by SMEs was £0.3bn.

Household deposits were +£10.7bn m/m in April, which represents the lowest level of net flow since September 2020 (for context, household deposits growth was +£16.6bn in March) but it remains well above historical levels (for context, the average monthly net flow in the six months to February 2020 was +£4.6bn) – while we would expect this to keep slowing in the coming months (and potentially reverse for a period as savers splurge) as economic activity normalises further, we are sceptical of arguments to the effect that material deposit price increases are in train given the substantial levels of excess liquidity in the system (though, with that said, one can never legislate for NS&I’s next move) and, instead, we expect deposit pricing to stabilise for a period. Indeed, the effective interest rate paid on new

household term deposits fell 2bps m/m in April to 0.47%. This document is intended for the sole use of Goodbody Investment Banking and its affiliates

Home…

Page 5 03 Jun. 21 Goodbody Morning Wrap

Issuer & Analyst Disclosures

Analyst Certification The named Research Analyst certifies that: (1) All of the views expressed in this research report accurately reflect my personal views about any and all of the subject securities and issuers. (2) No part of my remuneration was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this report.

Regulatory Information Goodbody Stockbrokers UC, trading as Goodbody, is regulated by the Central . In the UK, is also subject to regulation by the Financial Conduct Authority. Goodbody is a member of and the London Stock Exchange. Goodbody is a member of the FEXCO group of companies. This publication has been approved by Goodbody. The information has been taken from sources we believe to be reliable, we do not guarantee their accuracy or completeness and any such information may be incomplete or condensed. All opinions and estimates constitute best judgement at the time of publication and are subject to change without notice. The information, tools and material presented in this document are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities.

Conflicts of Interest Goodbody has procedures and policies in place to identify and manage any potential conflicts of interest that arise in connection with its research business. Goodbody analysts and other staff who are involved in the preparation and dissemination of research operate and have a management reporting line that is independent to its business. Information barriers are in place between the Corporate Finance arm and the Research arm to ensure that any confidential and or price sensitive information is handled in an appropriate manner.

Our Investment Research Conflicts of Interest Policy is available at Conflicts of Interest

Investors should be aware, that, where appropriate, research may be disclosed to the issuer(s) in advance of publication, in order to correct factual inaccuracies only and not to materially amend the research in any way. Goodbody is satisfied that it has operational procedures in place, which ensure that such disclosures will not compromise the report’s objectivity.

Goodbody has provided investment banking services to AIB Group, Applegreen, ARYZTA, Bank of Ireland, Cairn Homes, Collagen Solutions, Datalex, Draper Esprit, FBD Holdings, First Derivatives, Grafton Group, Greencore, Hammerson, Harworth, Hibernia REIT, ICG, Kingspan, Origin Enterprises, Playtech, Rank Group, Total Produce and Yew Grove REIT in the past 12 months.

Goodbody Stockbrokers acts as corporate broker to AIB Group, ARYZTA, Cairn Homes, Datalex, Draper Esprit, FBD Holdings, First Derivatives, Grafton Group, Greencore, Hibernia REIT, ICG, Kingspan, Origin Enterprises, Playtech, Rank Group, and Yew Grove REIT The list of companies for which Goodbody acts as market maker and on which it provides research, is available at Regulatory Disclosures

This document is intended for the sole use of Goodbody Investment Banking and its affiliates

Page 6 03 Jun. 21 Goodbody Morning Wrap

Other disclosures

We would like to inform you that Eamonn Hughes holds shares in AIB Group We would like to inform you that Dudley Shanley holds shares in CRH We would like to inform you that Robert Eason and Dudley Shanley hold shares in Kingspan

A description of this company is available at Company Descriptions

All prices used in this report are as at close of business of the previous working day unless otherwise indicated.

A summary of our standard valuation methods are available at Valuation Methodologies

A summary of share price recommendations and whether material investment banking services have been provided to these companies is available at Regulatory Disclosures

Other important disclosures are available at Regulatory Disclosures

Goodbody updates its recommendations on a regular basis. A breakdown of all recommendations provided by Goodbody is available at Regulatory Disclosures Where Goodbody has provided investment banking services to an issuer, details of the proportion of buys, holds and sells attributed to that issuer will also be included. This is updated on a quarterly basis.

The date on which stock recommendations were first released for all stocks mentioned in this report are available at https://www.goodbody.ie/assets/Reg_Disclosures.pdf. If a different recommendation has been made in the previous twelve months, this will also be disclosed here.

Recommendation Definitions Goodbody uses the terms “Buy”, “Sell” and “Hold. The term “Buy” means that the analyst expects the security to appreciate in excess of 10% over a twelve month period. The term “Sell” means that the security is expected to decline in excess of 10% over the next twelve months. The term “Hold” means that the analyst expects the security to neither appreciate more than 10%, or depreciate more than 10% over the next twelve months.

On 26th November, 2012, the terms “Add” and “Reduce” were removed from the Recommendation Definitions and both were replaced with the “Hold” recommendation. Any Previous Recommendation that refers to either an “Add” means that the analyst expected the security to appreciate by up to 15% over a twelve month period. Any Previous Recommendation to “Reduce” means that the analyst expected the security to decline by up to 15% over the next twelve months.

In the event that a stock is delisted the firm will automatically cease coverage. If however the firm ceases to cover a stock for any other reason the firm will disclose this fact.

Distribution of research to clients of Goodbody Securities Inc (GSI) in the US

GSI distributes third-party research produced by its affiliate, Goodbody GSI is a member of FINRA and SIPC GSI does not act as a market-maker.

This information was current as of the last business day of the month preceding the date of the report. An affiliate of GSI may have acted, in the past 12 months, as lead manager/co-lead manager of a publicly disclosed offer of the securities in this company. Investors should be aware that an affiliate of GSI may have provided investment banking or non-investment-banking services to, and received compensation from this company in the past 12 months or may provide such services in the next three months. The term investment banking services includes acting as broker as well as the provision of corporate finance services, such as underwriting and managing or advising on a public offer. All transactions by US persons involving securities of companies discussed in this report are to be effected through GSI.

This document is intended for the sole use of Goodbody Investment Banking and its affiliates Disclaimer While all reasonable care has been taken in the production and dissemination of this report it is not to be relied upon in substitution for the exercise of independent judgement. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you.

Private customers having access, should not act upon it in anyway but should consult with their independent professional advisors. The price, value and income of certain investments may rise or may be subject to sudden and large falls in value. You may not recover the total amount originally invested. Past performance should not be taken as an indication or guarantee of future performance; neither should simulated performance. The value of securities may be subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities.

All material presented in this report, unless specifically indicated otherwise is copyright to Goodbody. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of Goodbody.

Goodbody, Ballsbridge Park, Ballsbridge, Dublin 4, Ireland T (+353 1) 6670400 W www.goodbody.ie E [email protected] Page 7 03 Jun. 21