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Today ’s Newsflow Equity Research 06 May 2021 08:21 BST Upcoming Events Select headline to navigate to article

AIB Group Q121 IMS reiterates full year guidance but Company Events looks better on impairments, CET1 06-May AIB Group; Q121 Trading Update Air France-KLM; Q121 Results Strong start to the year, upgrading by at least 2% Barratt Developments; Q321 Trading Update Derwent London; Q1 Update Mondi Solid start to the year with positive signs on all Glanbia; Q1 update prices HeidelbergCement; Q121 Results Mondi; Q121 Trading Update HeidelbergCement Q121 – Guidance maintained 07-May IAG; Q121 Results 11-May IRES REIT; AGM Tyman Trading update underpins further upside to share 13-May Greggs; Q121 Trading Update price Hammerson; Final Div Payment Date Morses Club; FY20 Results

Derwent London Activity increasing as London re-opens Economic View Recovery already underway – AIB Services PMI Irish Economic View Robust tax revenues offset spending overshoots Economic Events Ireland First Derivatives Kx announces Microsoft partnership 06-May Industrial Production Mar21 13-May CPI Apr21

United Kingdom 06-May CIPS Services PMI Apr21 BoE Official Bank Rate 07-May CIPS Construction PMI Apr21 10-May Halifax House Prices Apr21 12-May Construction Output Mar21 GDP Mar21 Industrial Production Mar21 Trade Balance Mar21

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AIB Group Q121 IMS reiterates full year guidance but looks better on impairments, CET1

AIB publishes a Q1 IMS this morning. It returned to profit in Q1, it reiterates guidance for Recommendation: Buy the full year (ex-inorganic initiatives) and is confident on the outlook and its ability to meet Closing Price: €2.50 its medium-term targets. Q1 income is -4% yoy (NII -13%, other income +36%), costs are flat and impairments at c.35bps look a bit better than expected, as is CET1 at 15.8%. Eamonn Hughes +353-1-641 9442

[email protected] Total income is -4% in Q1. Whilst NII -13% yoy, AIB notes deposits at negative rates rose from €4.7bn to €8bn at end Q1, to €10bn currently nor is there any benefit from the €4bn

TLTRO drawdown last year pending verification on benchmarks (also open to considering June TLTRO with a €9bn total limit). NIM was 1.66% in Q1 (Q420 exit NIM was 1.70%) and we note the pick-up again in liquid assets (every €1bn c.2bps NIM). AIB reiterates its prior full year NII guidance of a “moderate decline” (we are -4.5%). Other income was +36% in Q1 with fees & commissions of €103m in line with a normalised run rate, whilst there were some positive valuation items. It reiterates 2021 other income to be broadly flat (prior to any inorganic deals). Costs were flat in Q1 (staff numbers -1%) and AIB reiterates full year guidance which is for a “marginal decline” (we have -1%). On impairments, AIB notes a Q1 charge of c.€50m or 35bps annualised – prior full year guidance was c.40bps. It will make a fuller assessment at the H1 results, but given the reopening of the economy, we suspect investors will reduce forecasts a bit. Finally, guided exceptional costs of €250m are in line.

AIB’s CET1 ratio was +20bps in Q1 to 15.8% (Q1 profit and positive calendar provisioning impact). New lending was -7% in Q1 to €2.3bn, the toughest yoy quarter, so should improve from here. Gross loans were €59.2bn at end Q1 which is only a modest €0.3bn decline in Q1, bearing in mind the NPE sale. On the mortgage side, there is no market share data, but AIB notes a strong applications and approval pipeline. SME lending was +3%. Deposits were c.€84.5bn in March, so +€2.5bn in Q1. NPEs were down in Q1 to €3.8bn, or 6.5% (FY20 7.3%), with the decline reflecting the Q1 portfolio sale, with minimal net flow to Stage 3 in Q1. On strategic priorities, negotiations with Natwest have “progressed constructively”, the regulatory approval process for Goodbody is underway and the JV with Great Westco is “progressing well”. Elsewhere, AIB is the first Irish company to commit to the World Economic Forum Stakeholder Capitalism metrics, plus is now ranked No. 53 of 1,047 banks with Sustainalytics.

Trading is in line with expectations and AIB reiterates full year guidance, so forecast changes are likely to be minimal. Our first impression is that we are likely to leave income and costs unchanged, though will likely lower our impairments

charge. Overall, a solid Q1 update, with the commentary hinting at more positive This document is intended for the sole use of Goodbody Investment Banking and its affiliates momentum as the economy reopens.

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Glanbia Strong start to the year, upgrading by at least 2%

Glanbia has released a robust Q1 trading update in which Group revenues increased by Recommendation: Hold 10.5% constant currency (c.c.). Noticeably, performance in North America and Asia Pacific, Closing Price: €12.52 across both GPN (c.17.6% branded revenue growth) and GN (Nutritional solutions volumes +10.3%) saw a marked improvement in the period. Jason Molins +353-1-641 9141

[email protected] GPN reported LFL branded revenue growth of 17.6% (vols c.13%) with good volume growth in Americas and International. Within the Americas, volume growth was seen across a

number of channels with a strong performance in ON helping offset weakness in Slimfast. Internationally, a strong recovery in Asia Pacific helped offset the impact from COVID restrictions in the European business. While some of the strength may be due to inventory rebuilds, it is encouraging that underlying demand has remained strong into Q2. The GPN transformation programme remains on target to deliver on the FY22 EBITA margin target of 12-13%. Furthermore, it will support increased brand investment which, coupled with innovation and further easing of COVID-related restrictions, is expected to drive further volume growth for the rest of the year across both regions.

Other key highlights include; i) Nutritional Solutions achieved LFL revenue growth of c.10% predominantly driven by non-dairy operations though demand for dairy solutions was solid through the period; ii) US cheese was also robust with volumes up 13% driven by robust end-market demand and the benefit of the new JV in Michigan which will be fully commissioned during Q2; and iii) Glanbia has continued to manage its cash flows extremely well with Q1 net debt coming in at €499m, down from €690.1m a year ago, and leaves leverage at c.1.5x.

The strong Q1 performance is also despite more challenging prior year comparatives and leaves Glanbia well positioned for the remainder of the year, particularly given the current backdrop on the vaccine rollout and reopening of markets. In that context, and following the strong start to the year, Glanbia now expects FY21 adj EPS to be at the upper end of the previously guided 6% to 12% c.c. growth range. Consequently, we are likely to upgrade our FY21 forecast by at least 2% from our initial expectation of c.9% constant currency EPS growth.

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Mondi Solid start to the year with positive signs on all prices

Mondi has reported Q121 group EBITDA of €353m (-8%) which is broadly in line with our Recommendation: Hold forecasts. Management notes strong demand in the packaging business along with higher Closing Price: £19.89 prices in containerboard and strong cost control during the period. Encouragingly there are positive signs for pricing on sack kraft, corrugated box and UFP. These will help offset the David O'Brien +353-1-641 9230 cost headwinds from OCC, resins, transport and energy. The ramp up of the kraft top david.a.o'[email protected] machine in Ruzomberok and the speciality kraft paper machine in Steti are going well.

The key highlights are; (i) In corrugated demand is described as very strong driven by ecommerce, FMCG and industrial applications which has driven “significant volume growth”. Good progress has been made con corrugated box prices to date; (ii) In Flexible packaging strong order books and tight copnditions is underpinning a push to increase kraft paper and bag prices for customers not utilising either semi or annual foxied contracts; (iii) In UFP volumes have improved sequentially and while prices are down yoy management notes that price increases were implemented at teh end of the quarter across all key markets.

Overall, management comments that the group is well placed to make progress in line with its expectations with contribution from capital programmes and focus on cost takeout mitigating input cost pressures and currency headwinds. This is a solid update from Mondi we believe the bias to our forecasts is to the upside for FY21 and particularly FY22.

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HeidelbergCement Q121 – Guidance maintained

HeidelbergCement released its Q121 trading update after close yesterday. Having already Recommendation: Buy pre released Q121 revenue (lfl +4%, in line w/forecasts) and EBITDA (+33% yoy, 22% Closing Price: €78.56 ahead of Goodbody), the new information was the divisional performance (confirms good growth across all regions) and the reiteration of guidance for a slight increase in group David O'Brien +353-1-641 9230 revenue and EBITDA for FY21. While recognising the increasingly more challenging cost david.a.o'[email protected] backdrop in FY21, the guidance is somewhat surprising given it implies a slight decline in group EBITDA for Q2-4 despite a clear acceleration in activity in March. Indeed, management

flagged that April was “going well so far” and gave a positive outlook for all of its major countries.

Key highlights are; (i) West & South Europe was the star of the show with 13% lfl revenue growth translating into 97% lfl EBITDA growth. Demand and pricing are positive across the region with “particularly satisfying performance in the UK”; (ii) US backlogs are solid with growth in demand expected for the year, while in Canada there has been a very favourable volume backdrop; (iii) Price over cost contributed €86m (Q420: €20m, Q320: €188m). However, management highlighted on the call that costs will be a challenge down the line with the group being shorter on energy in the latter half of the year which will “require significant price increases in some markets”; and, (iv) African performance (lfl revenue +9%, EBITDA +27%) was driven by sub-Saharan markets.

The detailed update has tempered our initial reaction to the pre close beat given management’s caution on the cost backdrop. Nonetheless, strong prospects for fiscal stimulus and scope for buy backs on the horizon underpin our positive view.

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Tyman Trading update underpins further upside to share price

Tyman has issued another strong update with sales up 14% in the first four months. The Recommendation: Buy performance was strongest in the US with sales up +16% on 2019, followed by International Closing Price: £4.26 at 10% while the UK was relatively weaker +9% due to the more commercial bias of the business. Management points to an order book that continues at pace in North America, a Robert Eason +353-1-641 9271 strong recovery in UK residential markets and the International division has seen growth [email protected] across all geographies, particularly in Continental Europe.

Given the strong start to the year, management is guiding that FY21 adjusted operating profit will be “above” the top end of the current range of analysts’ expectations, which according to the company’s website is £85m (Goodbody £83m). As a result of this guidance, we see forecasts moving towards £88-89m, which is effectively where our FY22 forecasts are at. So another upgrade which continues the momentum and should see the share price reach new highs.

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Derwent London Activity increasing as London re-opens

Derwent London (DLN:LN) released a short Q1 business update this morning noting that Recommendation: Hold th 93% of March 2021 quarter day rent has now been collected, up from 87% on 13 April with Closing Price: £33.62 another 4% expected later in the quarter. Following a similar theme across the London, office sector rent collection was stronger, with 95% of office rents collected with a further Colm Lauder +353-1-641 6042 4% expected later in the quarter. Management comment that these are the strongest rent [email protected] collection numbers since the start of the pandemic with office collection rates close to pre- pandemic levels.

Management also note a pick-up in lettings activity, commenting that they have observed a “marked increase in activity across our portfolio as London is emerging from lockdown” with £1.3m of new lettings achieved year to date, together with another £4.3m under offer. On average, these lettings were at rental levels 3.1% below December 2020 estimated rental value, although management do go on to comment that new space is letting above ERV and older unimproved space is letting at a discount. This is a common theme across the market.

From a balance sheet perspective, DLN remains well positioned to take advantage of improving London market trends, with the loan-to-value ratio falling to 16.0% at 31st March 2021 compared to 18.4% on 31 December 2020 and interest cover for the first three months of 2021 increased to 4.7 times from 4.5 times for the whole of 2020.

Overall, this was a short update, with limited activity to report given the restrictions that dominated the first quarter. Nonetheless, Derwent has continued to improve on rent collection and is in an advantageous position as the London economy re-opens, however we consider such to be significantly priced in already.

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Economic View Recovery already underway – AIB Services PMI

The fastest rate of growth in the Services sector since before the pandemic began means the Shaun McDonnell recovery in Ireland is well underway. The AIB Services PMI for April displayed an acceleration +353-1-641 9127 [email protected] in new business activity to 57.7 in April (up from 54.6 in March, and now well above lockdown III’s trough of c.38) bringing the index to its highest point since its pre-pandemic Dermot O’Leary level in February 2020. All four sub-sectors contributed positively to the headline index, +353-1-641 9167 another first-time occurrence since before the pandemic began. Technology, Media & [email protected]

Telecoms led the way in growth terms, followed by Business Services, Financial Services, and finally, the Transport, Tourism & Leisure sector, which was still in total lockdown throughout April.

As a result of heightened activity, total workloads increased at their fastest rate since before the pandemic began which was also the fastest rate of growth since 2018. New workloads were further bolstered by international demand, as services exports rose at their joint-fastest rate since July 2018, driven in particular by significant growth in the Financial Services sector, with reported increased business as a whole from the UK, which we suspect is contributing to this Financial Services trend following Brexit.

With increased output and increased workloads usually comes the enhanced demand for labour. This time was no different, as employment in the services sector saw only its third increase in employment since the pandemic began leaving the employment index at c.53 for April. This is still below pre-pandemic levels and is indicative of many services sectors remaining closed through the month. The reopening of non-essential retail and personal services in May will undoubtedly provide an impetus on this front. On that more forward- looking basis, optimism reached a 3-year high in April, as shown through the lens of the Future Activity Index. Unsurprisingly, input cost inflation is cited as a continuing challenge with UK customs among the reasons listed.

This morning’s release is another positive update for the Irish economy. As we noted upon the release of the Manufacturing PMI earlier this week, the Irish recovery is well underway, irrespective of restrictions on much of the economy remaining throughout April. These encouraging signs should continue through the summer months as we approach an economic sweet spot when sectors reopen and savings spill out of pockets and into tills.

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Irish Economic View Robust tax revenues offset spending overshoots

Robust tax revenues continue to cushion the full effects of extra pandemic related spending Dermot O’Leary in Ireland. The exchequer balance came in at €8.8bn in the first four months of the year, +353-1-641 9167 [email protected] relative to €8.5bn in the same period of 2020. Relative to the government’s expectation, the €1.1bn overshoot on spending so far this year is fully offset by the €1.2bn outperformance of Shaun McDonnell +353-1-641 9127 revenues. [email protected]

With comparatives lapping the lockdown at the start of the pandemic, comparisons with 2019 are now more appropriate. This shows that expenditure is 26% higher, but taxes are up by 4%. Income taxes are 15% higher, explained by growth in high-wage jobs that have been relatively unaffected by the pandemic and Ireland's progressive tax system. Corporation taxes are 22% higher (off a low base), while VAT receipts, the other main tax heading, are only 6% lower despite a shutdown of non-essential retail for the first four months of the year. Consumers have clearly adapted their behaviour dramatically.

In nominal terms, the increase in spending over the two-year period amounts to €6.2bn, mainly explained by the introduction of pandemic supports such as the EWSS and the PUP. As Ireland emerges from lockdown in the coming months, decisions will be made about how to end these schemes, with a commitment already made to avoid a cliff-edge. Low interest rates have facilitated an extraordinary fiscal response to the pandemic without threatening fiscal sustainability. Given the risks to corporate tax revenues over the coming years due to international tax changes, it is vital that temporary supports do not seep in to become permanent day-to-day spending.

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First Derivatives Kx announces Microsoft partnership

First Derivative’s Kx platform has announced an agreement with Microsoft to become a Recommendation: Buy Microsoft partner in the Azure network. The announcement follows the launch of KX Insights Closing Price: £28.05 a cloud-first platform for streaming analytics that fully leverages the benefits of cloud architecture natively to deliver fast, scalable real-time data insights via the Microsoft Azure Gerry Hennigan +353-1-641 9274 Marketplace. As part of the agreement, the two companies are working together to build a [email protected] long-term technical and go-to-market roadmap to enable companies with an initial focus on the financial services and Industrial IoT sectors to rapidly scale-up their real-time analytics

and decision-making capabilities.

With prior agreements in place with major cloud platform players including Google and AWS, this agreement with Microsoft provides Kx with access to the top three cloud platform players globally and continues to demonstrate the capability of the Kx offering. Along with various investment to “productise” the technology, this announcement supports the broader commercial and go to market strategy for Kx, in line with the strategic vision of the company.

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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 Bank of Ireland. 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.

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Goodbody has provided investment banking services to AIB Group, , , Bank of Ireland, , Collagen Solutions, Datalex, Draper Esprit, FBD Holdings, First Derivatives, Grafton Group, Greencore, Hammerson, Harworth, Hibernia REIT, ICG, Kingspan, , Playtech, Rank Group, Supermarket Income REIT, 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

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Other disclosures

We would like to inform you that Eamonn Hughes holds shares in AIB Group

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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.

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