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Irish Economic View 2020 Vision – Irish Economy Health Company Events Check 28-Jan Greencore; Q1 trading Paragon Banking; Q120 Results Greencore Steady start to the year UDG Healthcare; Q120 IMS Virgin Money UK; Q120 Trading Update UDG Healthcare Solid start to FY20 29-Jan ; Q320 Results 30-Jan International Paper; FY19 Results Virgin Money UK VMUK delivers reassuring 1Q20 trading Rank Group; Q220 Results update St. James's Place; FY19 Results Unilever PLC; FY19 Results 31-Jan ; Q120 Trading Statement A.G. BARR FY20 revenue in-line at -8.5% though PBT slightly ahead of expectations Irish Banks Research paper highlights gap between domestic and external shocks may be reducing

Economic Events 28-Jan Retail Sales Dec19 04-Feb ILO Unemployment Rate Jan20

United Kingdom 28-Jan CBI Distributive Trades Survey Jan20 29-Jan Nationwide House Price Jan20 30-Jan BoE Official Bank Rate 31-Jan BoE Mortgage Approvals Dec19 M4 Money Supply Dec19

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Irish Economic View 2020 Vision – Irish Economy Health Check

We are publishing our first Irish Economy Health Check of the year this morning. The Irish Dermot O’Leary economy is expected to benefit from a near-term bounce in business investment in 2020 as +353-1-641 9167 [email protected] delayed plans are carried forward after a hard-Brexit was avoided. Along with a consumer that continues to benefit from solid growth in employment and earnings, we expect core domestic demand to grow by 3.6% in 2020, making it one of the fastest growing economies in the euro area once again.

In the report, we highlight ten key issues that investors in the Irish economy should be aware of in 2020. These include: (i) a likely hung Dáil following Election 2020; (ii) a return to concerns about a Brexit cliff-edge; (iii) the new normal for the Irish housing market, and; (iv) rising wage pressures in a tight labour market. Ireland faces threats to its economic model over the coming years with impending changes to the international corporate tax environment. While the shape of the new rules is still up in the air, policymakers must focus on areas outside of tax to maintain Ireland’s attractiveness to FDI. This includes a rapid focus on both hard infrastructure (housing, transport etc) and human capital (third-level universities, digital skills).

The report should be in your inbox this morning.

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Greencore Steady start to the year

Greencore has released a solid Q1’20 trading update this morning despite the backdrop of Recommendation: Buy challenging trading conditions. Group lfl pro-forma revenues increased by 0.7% (1.8% on a Closing Price: £2.48 reported basis), largely in line with forecasts, driven by a solid outcome across both of its key product categories. The Group notes that the year has started in line with plans and that Jason Molins +353-1-641 9141 it continues to expect a year of profitable growth. Overall, while Q1 is the least significant [email protected] quarter for the Group we consider today’s announcement as a reassuring update. At this juncture we see no change to our forecasts where we anticipate FY20 operating profit of

£117.2m.

This document is intended for the sole use of Goodbody Stockbrokers and its affiliates Key highlights from today’s update include: (i) The to Go categories delivered 0.5% pro-forma revenue growth which we note is against a tougher prior year comparative (Q1’19 6.4%) and, as expected, is broadly consistent with the outcome achieved during H2’19; (ii) Freshtime has performed well during the quarter; (iii) Revenues from the other convenience categories increased by 0.9% on a pro-forma basis, with reported revenues (-3.0%) impacted by the exit from longer life ready meals at Kiveton in H1’19.

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UDG Healthcare Solid start to FY20

Guidance for FY20 is, as expected, the primary point of note in a solid Q1’20 trading update Recommendation: Buy from UDG this morning covering the period Oct. 1 to Dec. 31. Relative to earnings of 47.3c Closing Price: £7.93 for the year to September under IFRS 15 & 16, cc earnings growth in the range of 7% - 9% is guided, which compares to growth of c.8% in our model (on an IFRS 15 & 16 basis). Gerry Hennigan +353-1-641 9274

[email protected] Divisional commentary indicates positive YoY growth from both Sharp and Ashfield in Q1 with the Comms & Advisory side of Ashfield serving to counteract the Commercial & Clinical side

of the business, which post re-structuring “has started the year trading in line with expectations”. Commentary on the balance sheet (pro-forma Net Debt / EBITDA estimate of 0.8x adj. for IFRS 16) is limited to ample funding “to make further strategic acquisitions” a likely topic of conversation in the scheduled conference call at 9am this morning (+44-203- 059-5868).

Relative to our FY20 EBITA projection of $175m (on an IFRS 15 & 16 basis, implied YoY growth of 10%), adj. EPS guidance is directly in line with 51c estimate for the current year. Underpinning that outlook is ongoing growth from Sharp and the Comms & Advisory side of Ashfield, even if Commercial & Clinical (20% - 25% of Group EBITA) appears to be stable at best.

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Virgin Money UK VMUK delivers reassuring 1Q20 trading update

Virgin Money UK (VMUK) reported a broadly positive trading update for 1Q20, which was Recommendation: Buy largely as we expected – as communicated to you in our preview note on 23rd January. In Closing Price: £1.65 overall terms, we see the stock price react favourably this morning to the update (and most of yesterday’s sell-off should be reversed), the key points of which were: i) management is John Cronin +353-1-641 9187 confident in the sufficiency of the PPI provision; ii) NIM of 160bps, which was flat q/q – and [email protected] management reiterates full year NIM guidance of 160-165bps; iii) positive messaging on cost reduction targets; iv) good deposits growth and broadly flat net loans; and v) strongly

capitalised with a CET1 capital ratio print of 13.1% (-20bps q/q, reflecting credit RWA density growth and £56m of restructuring / FV unwind costs). In line with guidance is positive for VMUK stock price performance in our view and we would be happy to be long ahead of trading this morning.

Getting into the detail: i) PPI: The statement notes that the remaining sufficient has been assessed as sufficient; there are <50k IRs outstanding and IR conversion & uphold rates are trending in line with the group’s assumptions; ii) Loan growth: Net loans -0.1% q/q – we were looking for growth of <+0.25% q/q, so broadly in line – unsurprisingly, the mortgage book shrunk (-0.8% q/q) as management’s appetite to drive growth in an intense competitive market has lessened, business lending growth and consumer lending growth came in at +2.5% q/q and +3.7% q/q, respectively as VMUK concentrates on higher-yielding (and higher risk) lending segments to deliver its growth objectives; iii) Deposits growth: Growth of 1.6% q/q was stronger with our forecast for growth of at least 0.75% q/q, with the statement flagging “good relationship deposit performance” which should be constructive in a funding costs reduction context (notably, the first Virgin Money digital PCA was launched in 1Q too); iv) NIM: NIM of 160bps was bang in line with our expectations and was flat q/q, which should provide reassurance – while management reiterates its full year NIM guidance for NIM of 160-165bps, we do have concerns around risks to the downside (despite tilt towards consumer/business lending) given observed behaviour in the mainstream mortgage market in the year-to-date and our doubts that competitive conditions will relax any time soon (we forecast FY20F NIM of 161bps) and we don’t believe management will push harder than planned in higher risk lending segments to compensate; v) Opex: Further positive messaging on costs, with c.£70m of annual run rate net cost savings realised to date and further progress made towards the target of c.£200m of net cost savings by FY22 – the statement also notes “We are focused on delivering FY20 underlying costs of <£900m”, which we interpret as confirmation of guidance; vi) CoR: Cost of risk of 23bps in 1Q20, exactly in line with our forecasts (we are at 31bps for FY20F,

and our impairment charge forecasts are higher than the street); and vii) Capital: Strong CET1 This document is intended for the sole use of Goodbody Stockbrokers and its affiliates capital ratio print of 13.1% - while we were at 13.3% and while we had anticipated a negative RWA density effect in our preview (due to loan mix evolution) we also had expected a quiet quarter on the exceptionals front – though the £56m of restructuring and acquisition FV unwind costs were in line with guidance (which is given on a full year basis) so we don’t see this as a negative.

All-in-all this is a reassuring, and therefore a positive, update. It now appears that VMUK can effectively shut the door from a PPI perspective (in a markets context), all other metrics are on track, and the key themes for the name in the coming quarters will be: i) NIM preservation; and ii) CoR trajectory, particularly as the business is delivering growth through refocusing on higher-risk lending segments (consumer particularly).

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A.G. BARR FY20 revenue in-line at -8.5% though PBT slightly ahead of expectations

A.G. Barr this morning provided a pre-close trading update for the year to the end of Recommendation: Sell January. Group revenue is expected to end the year at c.£255m which is broadly in-line with Closing Price: £5.44 our forecast and reflects a c.8.5% decline yoy. From a profit perspective, management indicated that it anticipates that adjusted profit before tax will be ‘at the top-end of current Patrick Higgins +353-1-641 0403 market expectations’ and just above £37m which implies a c.18% decline yoy. This [email protected] compares to guidance provided in July for a year-on-year decline of up to 20% and represents a c.2% beat vs. our estimate for £36.3m.

The declines were driven by challenging market conditions, brand specific issues for Rockstar and Rubicon, and the volume impact of price increases, particularly on its core brand, IRN- BRU. The statement notes that the Rockstar and Rubicon recovery plans are now being implemented, while IRN-BRU returned to growth in the final quarter.

In terms of the outlook, management expects the encouraging momentum at the end of the year to continue into 2020.

Overall, this is a solid update from A.G. Barr and, given the weakness in the stock last year, we suspect the small beat vs. profit expectations will be well received this morning. However, we note the continued weakness in the top-line and continue to believe that a recovery to FY19 levels will take time given the change in mix of the business. In terms of FY21 estimates, we currently forecast Group EBIT of £38.5m (+4.5% yoy) which is broadly in-line with consensus and we are unlikely to adjust this figure at this stage.

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Irish Banks Research paper highlights gap between domestic and external shocks may be reducing

The Central Bank published a research technical paper yesterday entitled “Economic Policy Eamonn Hughes Uncertainty in Small Open Economies, a Case Study of Ireland”. The authors note that the +353-1-641 9442 main contribution of the paper is the construction of a measure of Economic Policy [email protected] Uncertainty (EPU) for Ireland. The paper notes that domestic uncertainty shocks foreshadow Barry Egan persistent declines in Irish investment and employment with no clear response from the ECB. +353-1-641 6059 On the other hand, no such decline in demand is observed following global uncertainty [email protected] shocks, largely resulting from an accommodative monetary policy stance from the ECB.

The paper comments that the size of the foreign sector is important since a large share of

multi-national companies is likely to create more reliance on foreign debt and equity inflows should there be international uncertainty shocks. The size of the financial sector is also relevant because recent research finds uncertainty shocks operating through financial friction channels, and negatively impacting the real economy. Foreign uncertainty has also been shown to impact capital inflows into small open economies. It adds that it is debatable whether further decreases in the ECB deposit rate into negative territory will stimulate the economy in the same way as decreases in interest rates under a positive rate environment. As such, where monetary policy is constrained, the paper gives evidence that Global EPU shocks may result in unfavourable outcomes, with declines in investment and employment resembling those observed following Domestic EPU shocks.

The reference in the technical paper of evidence that policy uncertainty shocks have negative and persistent effects on Irish economic activity, but only when interest rates do not react or are constrained, is worth considering. It is not mentioned specifically in the technical paper, but we wonder if the powers that be in the Central Bank reading the report decide that if the monetary policy tools are weakening in their ability to dampen economic shocks then they may feel the need to ensure other stabilisers are in place, like bank capital levels, for instance. Whilst unwinding the Countercyclical Buffer (CCyB) may provide some flexibility in bouts of uncertainty, having high capital levels in a general sense may be deemed the most appropriate course of action. It certainly feels like that with a leverage ratio in Ireland of >9% but with the European average just >5%.

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