Morning Wrap

Today ’s Newsflow Equity Research 16 Aug 2016 Upcoming Events Select headline to navigate to article

FBD Holdings NAV and ROEs at an inflection point; Company Events Upgrade to Buy 16-Aug Geberit; Q2 2016 results 17-Aug Wienerberger; Q2 2016 results Building Materials Solid statement from Geberit with 18-Aug Kingfisher; Q2 2016 results improving trends in mainland Europe Nestle; Q2 2016 results

Builders Merchants Encouraging update from Polypipe

Economic Events Ireland

United Kingdom

United States

Europe

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FBD Holdings NAV and ROEs at an inflection point; Upgrade to Buy

H116 results showed prior year adjustments were “negligible”, reinforcing the view that Recommendation: Buy 2015’s €96m reserve strengthening is adequate. Our detailed analysis of FBD’s historical Closing Price: €7.00 reserving patterns and peer analysis using Central Bank returns provide further comfort on Eamonn Hughes reserving adequacy. In addition, the raised margin for uncertainty (MFU) in the FY15 +353-1-641 9442 reserving equates to 13% of NAV. If claims handlers estimates prove correct, any MFU [email protected] reduction would supplement NAV.

Rising claims costs are creating difficult trading conditions, though losses reduce materially this year (FY16f -€4m) as FBD pushes up rates, simplifies its business (new CEO last year) and takes out costs (c.€8m target). Brexit poses a headwind for FBD’s agri-customer base, but forecasts already have volume declines in FY17 and a sharp slowdown in rate rises. We believe FBD will achieve our target 12.5% ROIC in 2019f vs its historical 22% ROE average.

Comfort on reserving and a return to profits in FY17 means we are forecasting NAV per share to trough in H216 at €6.03, growing in FY17 and FY18 by 6% and 8% respectively. We forecast the resumption of dividends in FY18 (14c, 25% pay-out). Historically, sector peers have re-rated in anticipation of improving ROE profiles and/or upwards rates action. In our view, H216’s NAV stabilisation provides the catalyst for a similar story to unfold at FBD. Using our target ROIC of c.12.5%+, we derive a PT of €7.90, offering c.13% upside, so upgrade from Hold to Buy.

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Building Materials Solid statement from Geberit with improving trends in mainland Europe

Geberit has reported Q2 adjusted EBITDA of CHF232.7m. This was 10% ahead of Bloomberg Robert Eason +353-1-641 9271 consensus, reflecting a very strong top-line performance in the second quarter with lfl sales [email protected] up 10.2% versus +3.1% in Q1. While the latter benefited from two extra working days, management notes that “sales benefited earlier than expected from the first synergies from David O’Brien +353-1-641 9230 the integration of the ceramic business”. Management has guided for FY underlying sales david.a.o’[email protected] growth of 5% and EBITDA margins of “around 28%” which implies an EBITDA of circa Jason Molins CHF790m, 2% ahead of consensus. +353-1-641 9141 [email protected]

In terms of the regional performance, underlying sales growth in Europe improved to 7.5% Sarah Dunne in the first half versus 3.7% in Q1. Double-digit growth was achieved in CEE, Austria, Nordics +353-1-641 0482 [email protected] and Iberian Peninsula, while high-single digit growth was achieved in Germany, Italy, Benelux and France. UK / Ireland was one of the weakest European markets for Geberit with lfl growth of 1.8%. In addition, in the outlook management expects positive market developments in Germany, the Netherlands, Sweden and Poland, whereas previously it had included the UK. Underlying growth trends also improved in North America with -0.4% in H1 versus -3.6% in Q1 and management reiterated its expectation for moderate growth in the public sector, a key segment for the group.

This is a solid update from Geberit and we see small upgrades following but we note the share price has been strong into the results. For companies under our coverage the points of note are the improving trends in mainland Europe, while there is more caution on the UK.

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Builders Merchants Encouraging update from Polypipe

Polypipe has reported a 45% increase in first half underlying PBT, driven by solid underlying Robert Eason +353-1-641 9271 sales growth and contributions from acquisitions. Indeed, underlying growth in the UK was [email protected] solid at 8% (consistent with first four months), reflecting strong demand from the housebuilders, an improvement in rmi and strong growth in infrastructure. David O’Brien +353-1-641 9230 david.a.o’[email protected] On the outlook, management notes “in the first six weeks of the second half of the year (to Jason Molins th 12 August), order intake across our business has remained consistent with the normal +353-1-641 9141 seasonal pattern with no discernible signs of weakening following the EU referendum”. [email protected]

However, it does note that it receives orders after the project has commenced and therefore Sarah Dunne “there may be a degree of unwind if new projects do not start”. +353-1-641 0482 [email protected]

Overall, this is a solid update from Polypipe and similar to other building materials companies, to date there has been no discernible impact from Brexit. While encouraging, there remains a degree of uncertainty from corporates on how future construction starts will evolve as current activity reflects decisions made a number of months ago.

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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 2016f 2017f CRH 28.52 23,262 0.4 3.9 8.6 6.8 0.4 2.5 6.1 12.9 17.9 14.2 AIB Group 6.60 18,025 -2.9 1.5 3.1 -0.9 -2.9 0.2 0.7 4.8 12.7 23.1 HeidelbergCement 81.50 16,171 2.0 7.6 14.1 7.8 2.0 6.2 11.5 13.9 15.7 14.3 12.11 15,608 -1.5 2.2 4.4 -19.4 -1.5 0.9 2.0 -14.7 14.2 11.4 77.75 13,668 -0.3 1.0 -3.7 1.9 -0.3 -0.3 -5.9 7.7 24.0 21.3 Wolseley 43.36 11,276 0.7 4.4 5.6 17.5 0.1 0.6 -0.8 5.3 17.2 15.1 Paddy Power Betfair 98.00 8,203 2.3 6.1 14.4 7.9 1.7 2.3 7.5 -3.3 31.8 26.1 IAG 4.03 8,188 -1.2 0.7 -4.6 -34.0 -1.2 -0.6 -6.8 -30.3 5.5 4.7 Mondi 16.20 7,866 -0.3 2.9 13.7 21.4 -0.3 1.5 11.0 28.4 12.6 12.1 DCC 70.20 6,194 0.7 3.1 4.9 24.0 0.1 -0.6 -1.4 11.1 21.0 25.1

Indices ISEQ performance

% Price 1 Day 1 Week 1 Mth Ytd ISEQ 6,045.83 -0.11 2.56 4.40 -10.98 6,800 FTSE 100 6,941.19 0.36 1.94 4.08 11.20 6,600 6,400 DAX 30 10,739.21 0.24 2.94 6.68 -0.04 6,200 CAC 40 4,497.86 -0.05 1.87 2.87 -3.00 6,000

FTSE Eurofirst 300 1,363.09 0.02 1.34 2.05 -5.18 5,800

Nasdaq 5,262.02 0.56 0.94 4.62 5.08 5,600 S&P 500 2,190.15 0.28 0.42 1.31 7.15 5,400 Dow Jones 18,636.05 0.32 0.58 0.65 6.95 5,200 Aug-15 Nov-15 Feb-16 May-16 Nikkei 225 16,869.56 -0.30 1.32 2.25 -11.37

Exchange Rates

Current Px 1 day Px 1 Week Px Dec15 Avg Ytd

Stg/€ 0.870 0.864 0.849 0.737 0.792 STOXX 600 performance US$/€ 1.120 1.118 1.107 1.086 1.115 CHF/€ 1.088 1.088 1.089 1.087 1.094 390 JPY/€ 113.123 112.802 113.552 130.676 122.472 380 370 Bonds 360 350

Yield 1 Day Yld 1 Wk Yld 1 Mth Yld 3 Mth 340 US 2 Yr 0.73 0.03 0.73 0.06 -0.02 330 US 10 Yr 1.56 0.05 -0.04 0.01 -0.14 320 310

UK 2 Yr 0.13 -0.01 0.05 -0.03 -0.23 300 Aug-15 Nov-15 Feb-16 May-16 UK 10 Yr 0.53 0.01 -0.08 -0.30 -0.85

BD 2 Yr -0.62 0.02 0.00 -0.62 -0.10

BD 10 Yr -0.07 0.04 -0.00 -0.07 -0.20

Irish 10 Yr 0.36 0.04 -0.03 -0.13 -0.45

Commodities FTSE 250 performance

% Current 1 day 5 day 1 Mth 1 Yr 18,000 Brent (ICE $/bbl) 48.35 2.94 9.76 1.55 -1.39 17,500 Gasoline (NYM $/Gal) 1.40 2.17 7.63 -1.50 -16.97 17,000 Heat Oil (NYM $/Gal) 1.44 2.50 9.51 3.32 -7.32 16,500 Nat.Gas 2.59 0.15 1.13 -6.02 -7.53 Gold $/oz 1,339.40 -0.95 -0.62 0.93 19.78 16,000 Silver $/ozt 19.90 0.15 -2.14 -1.19 27.97 15,500

Copper U$/MT 4,746.00 - -2.64 -4.03 -7.95 15,000

Wheat $/BU 4.23 - 0.18 -0.53 -16.58 14,500 Aug-15 Nov-15 Feb-16 May-16

Source : FactSet

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