Morning Wrap

Morning Wrap Today ’s Newsflow Equity Research 19 Jul 2019 08:16 BST Upcoming Events Select headline to navigate to article Paper and Packaging Stora Enso reports weak Q2, Company Events flagging lower box prices 19-Jul Close Brothers Group; Q419 Trading Update Stora Enso ; Q219 Results Building Materials US non-residential forecasts are 23-Jul Paragon Banking; Q319 Trading Update revised down 24-Jul Britvic; Q319 Trading Update Kindred Group; Q219 Results UK Banks CBG issues a disappointing pre-close trading Marston's; Q319 Trading Update Metro Bank; Q219 Results update – NIM in focus 25-Jul AIB Group; Q219 Results Bankinter; Q219 Results Breedon Group; Interim results Howden Joinery; H1 results International Paper; Q219 Results Permanent TSB; Q219 Results Tyman; H1 results Unilever PLC; Q219 Results Wizz Air; Q120 Results Economic Events Ireland 22-Jul PPI June19 Wholesale Price Index June19 26-Jul Retail Sales June19 United Kingdom 23-Jul CBI Industrial Trends July19 25-Jul CBI Distributive Trades July19 United States Europe This document is intended for the sole use of Goodbody Stockbrokers and its affiliates Goodbody Capital Markets Equity Research +353 1 6419221 Equity Sales +353 1 6670222 Bloomberg GDSE<GO> Goodbody Stockbrokers UC, trading as “Goodbody”, is regulated by the Central Bank of Ireland. In the UK, Goodbody is authorised and subject to limited regulation by the Financial Conduct Authority. Goodbody is a member of the Irish Stock Exchange 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 Paper and Packaging Stora Enso reports weak Q2, flagging lower box prices Stora Enso has reported Q2 results to the end of June. At a headline level, group sales and David O’Brien EBIT came in 2% and 7% behind consensus estimates. Additionally, the mid-point of the +353-1-641 9230 group’s guidance for Q3 is 19% below consensus. david.a.o’[email protected] Robert Eason Of relevance for the three names under our coverage, Packaging Solutions EBIT fell 32% yoy +353-1-641 9271 (-16% Q1), missing estimates by 19%. This was driven by the well-documented drop in [email protected] containerboard pricing, lower containerboard deliveries, offset by slightly stronger demand for corrugated boxes. Of particular note, management has flagged lower sequential pricing of corrugated boxes, which is the first hard data point seen in the industry of such a fall through this cycle. Given the negative trend in containerboard pricing over the last 10 months we were expecting box prices to weaken into H219 so this Q219 data represents confirmation that this trend has begun. As such, we believe DS Smith, Smurfit Kappa, and to a lesser extent Mondi, will struggle to grow earnings organically over the short-term. Home… Building Materials US non-residential forecasts are revised down The American Institute of Architects (publishers of the Architectural Billings Index) released David O’Brien its latest consensus overview of non-residential construction forecasts, which is derived from +353-1-641 9230 a panel of eight industry bodies. For the current year the expectation is for the segment to david.a.o’[email protected] grow by 3.8%, down 60bps from the last forecast in January, with the key driver being the Robert Eason commercial segment where growth was revised down by 100bps to 2.5%. Industrial is +353-1-641 9271 expected to grow by 6.4% and Institutional +4.9%. [email protected] Forecasts for next year are unchanged with growth expected to slow to 2.4%. Similar to Sarah Stokes +353-1-641 0482 2019, the commercial segment is expected to have the weakest growth at 1.1%, while This document is intended for the sole use of Goodbody Stockbrokers and its affiliates [email protected] Institutional and Industrial are forecast to grow by 3.7% and 3.3%, respectively. Sean Blaney Given that the ABI has been soft for most of this year, the downgrade to US non- +353-1-6419222 residential forecasts does not come as a surprise. Indeed, one could argue should [email protected] the revisions have been more, especially for 2020. With this as a backdrop, the US non-residential segment will be a key area of focus in the upcoming results from the building materials sector. Home… Page 2 19 Jul. 19 Goodbody Morning Wrap UK Banks CBG issues a disappointing pre-close trading update – NIM in focus Close Brothers Group (CBG) published a pre-close trading update for the 11-month period to 30th June 2019 this morning ahead of the publication of its full year results for the year ending John Cronin +353-1-641 9187 31st July on 24th September. In overall terms, the company notes that it has “continued to [email protected] perform well across all divisions, consistent with our Q3 trading update”. However, we get some more meat on questions that surfaced at the stage of the 3Q19 results (Banking Division Colin Jackson NIM, Asset Management profitability) on 22nd May last. +353-1-641 6050 [email protected] Firstly, CBG notes that the Banking division loan book was +5.1% 11M YTD to £7.3bn at 30th Barry Egan June, which represents a decent improvement on the +3.6% 9M YTD growth at 30th April – a +353-1-641 9492 trend that is consistent with the prior year, where May and June also proved to be important [email protected] months from a loan book expansion perspective. While Commercial was unsurprisingly an important driver of growth for the 11M period, it is interesting to note that the Property loan book was “broadly flat”. CBG also noted that growth in the Retail loan book was “solid”, mainly driven by Premium Finance with a modest uplift in Motor – CBG did not call out Retail as a source of growth at the 3Q19 results stage and noted strong growth in Premium Finance but slight contraction in Motor in the 1H19 release. Growth in Motor in recent months may raise some concerns regarding margin outlook (see below) and asset quality (we have seen Fleet News report heavy falls in used car prices in recent months). CBG calls out a “slight reduction” in NIM to 7.8% 11M YTD. We were previously told that 3Q19 NIM was “broadly in line” (which raised questions) with FY18 NIM, i.e., 8.0%, though it is important to note that 1H19 NIM was “strong” at 8.1%. The drop from 8.1% to 7.8% implies that CBG’s NIM for the five- month period to 30th June is actually <7.5% (which could be construed as a rebasing of run rate NIM) and we are told that the NIM compression reflects fee income as well as funding cost pressures – any deterioration in asset yields owing to competitive pressures would add to NIM pressure. On a more positive note, it was reassuring to note that bad debts have, once again, remained low with “continued strong credit performance across the business” – testament to CBG management’s disciplined approach to lending though, as for other lenders, there are of course risks on the horizon. Secondly, “good net inflows” were recorded in Asset Management, with managed assets +9% 11M YTD to £11.3bn (up from £10.9bn at 30th April) and total client assets +6% 11M YTD to £12.9bn (up from £12.5bn at 30th April), though these growth rates are lower than the growth run rates in the equivalent 11M period to 30th June 2018 (which saw managed assets and total client assets +14% and +8% 11M YTD respectively). CBG cautions on Asset Management This document is intended for the sole use of Goodbody Stockbrokers and its affiliates profitability, noting that it “continues to reflect lower market levels for the year and ongoing investment spend”. Notably, CBG reported that Asset Management operating profit was -5% y/y in 1H19 in response to challenging market conditions and higher costs (new hires, etc.). Finally, we got the same positive message on Winterflood as we did at the stage of the 3Q19 trading update, i.e., “solid profitability” though trading volumes “remained low”. All-in-all CBG reported a decent performance in the 11M YTD period in the face of more challenging market conditions than the prior year. However, the market is unlikely to react warmly to the material NIM compression recorded since 1H19 and is also likely to have some further concerns regarding profitability in Asset Management despite the fact that CBG reported that operating profits in this division were down in 1H19. Home… Page 3 19 Jul. 19 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 Bank of Ireland. In the UK, Goodbody is authorised and subject to limited regulation by the Financial Conduct Authority. Goodbody is a member of the Irish Stock Exchange 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.

Load more