Morning Wrap

Today ’s Newsflow Equity Research 11 Aug 2016 Upcoming Events Select headline to navigate to article

UK Economic View RICS points to ongoing UK housing Company Events slowdown 11-Aug Enterprise Inns PLC; Q3 2016 results 12-Aug FBD Holdings; Q2 2016 results US Building Materials ARTBA remains positive on 15-Aug Bovis Homes Group ; Q2 2016 results highways despite weaker contract awards trends 16-Aug Geberit; Q2 2016 results 17-Aug Wienerberger; Q2 2016 results Greencore US peer reports strong maiden results, 18-Aug Kingfisher; Q2 2016 results Bakkavor also sees steady UK growth Nestle; Q2 2016 results

Britvic Poor weather impacts Refresco performance in Q2 Flowers lowers guidance Symrise sees strong H1 growth Cairn Homes Construction industry lobby group submits pre-Budget submission Banks KBC Q2 results – lowering its Irish impairment charge guidance Economic Events Ireland Draper Esprit Conversocial lands a contract with Icelandair 11-Aug CPI July 2016 CPL Resources PageGroup results highlight Brexit uncertainty United Kingdom

United States

Europe

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

Goodbody Stockbrokers (trading as Goodbody) is regulated by the Central . For the attention of US clients of Goodbody Securities Inc, this third-party research report has been produced by our affiliate Goodbody Stockbrokers. Please see the end of this report for analyst certifications and other important disclosures. Goodbody Morning Wrap

UK Economic View RICS points to ongoing UK housing slowdown

According to the latest RICS survey published this morning, the UK housing market Dermot O’Leary +353-1-641 9167 continues to slow in the post-Brexit environment. The headline balance, which measures how [email protected] prices have changed over the past three months, remained in positive territory in July but fell for the fifth consecutive month to +5% (+15% in June). London (-33%) is by far the worst performing region, while eight regions remain in positive territory.

The detail contained in the report is more negative. New buyer enquiries, an indicator of demand, remains firmly in negative territory (-27%), albeit slightly less negative than a month previously (-36%). New instructions to sell (-33%) and agreed sales (-34%) also continued to fall at a fast pace across the country. In terms of prices, expectations (over the next three months) are slightly less negative, with the net balance rising from -26% to - 12%. Notably, more respondents believe prices will increase over the next twelve months (+23% in July versus 0% in June). Underpinning this view is the level of housing stock on the books of agents, with current levels close to all-time lows.

There are differing opinions as to the impact of Brexit on the UK property market contained in this morning’s RICS survey. Given the time of the year, a true reflection is only likely to come through when the selling season begins again in September.

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US Building Materials ARTBA remains positive on highways despite weaker contract awards trends

The American Road Transportation Builders Association (ARTBA) held a quarterly update Robert Eason +353-1-641 9271 after European markets closed yesterday. Similar to ourselves it is on data watch given the [email protected] unexpected weakness that we have seen in highway contract awards in the ytd (-20%). This is in contrast to actual highway construction output which is up mid-single digits. David O’Brien +353-1-641 9230 david.a.o’[email protected] One of the first things that ARTBA showed was that contract awards are much more volatile Jason Molins than underlying construction activity and can be impacted by big projects. Indeed, this was +353-1-641 9141 the case in 2015 which has resulted in very difficult yoy comparatives for the first half of the [email protected] year. In addition, it is likely that the presidential election is delaying progress at a state level Sarah Dunne in terms of implementation of transportation policy. +353-1-641 0482 [email protected]

Despite the recent weakness ARTBA remains relatively upbeat on the prospects for highway construction activity given the passing of the multi-year federal highways programme and the improving budgetary situation at a state / level. The latter has been aided by states increasing their own motor taxes but this takes time to feed into actual expenditure. For, example, eight states approved motor tax increases in 2015 and a further 14 are considering such measures in the ytd. However, ARTBA did note that the recovery at a state level will be uneven given other budgetary pressures (education and healthcare).

Overall, while ARTBA is on data watch following the recent weakness in contract awards it remains positive on the US highways segment and is looking for trends to improve into H2 and 2017. This is consistent with our view and it is why we are positive on heavyside names like CRH and HeidelbergCement. Home…

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Greencore US peer reports strong maiden results, Bakkavor also sees steady UK growth

AdvancePierre Foods reported its maiden H1 results yesterday afternoon. The Group, which Recommendation: Buy produces entrees and sandwiches for the foodservice and retail channels, delivered core Closing Price: £3.31 volume growth of 3.2% in Q2 and 2.4% for the ytd. It beat Q2 earnings consensus by 76% Liam Igoe which reflects the solid organic growth in its core business, significant cost savings as a +353-1-641 9450 result of productivity initiatives and sequential EBIT margin expansion (+90bps QoQ from [email protected] 11.1% to 12%).

AdvancePierre management also provided an FY EPS guidance of between $1.65- $1.75 which is well ahead of consensus ($1.14), though it expects net sales to be lower ($1.54b- $1.59b vs. consensus of $1.60b). It is rationalising a number of low margin SKUs (in the Industrials segment) as well as passing on lower input costs to customers, both of which are weighing on sales.

Elsewhere, Bakkavor reported H1 results this morning, with lfl sales growth of 2.8% in its UK division. The Group is more focused on ready meals and other fresh foods than sandwiches. In its outlook, management acknowledged the economic uncertainty associated with Brexit and the likely cost inflation from rising inputs and labour costs. However, it feels it is well placed for the future and will continue investing to drive growth.

AdvancePierre Foods has a $1.9bn market cap and trades on an FY17 PE of 18.2x. By comparison, Greencore currently trades on an FY17 PE of 15.6x. The Group’s double-digit margins provides comfort that Greencore can deliver the 6.5% margin target in the US in the medium term. Bakkavor is a direct peer of Greencore’s ready meals business which has been growing at similar rates to Bakkavor. Our c.7% lfl sales growth forecast for Greencore’s UK division is driven by its food-to-go business. Home…

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Britvic Poor weather impacts Refresco performance in Q2

Refresco Gerber, the Dutch based co-packer and private label manufacturer, reported H1 Recommendation: Buy results this morning. The Group reported volume growth of 1.9% in the period despite being Closing Price: £6.11 negatively impacted by unfavourable weather conditions throughout Europe and continued Patrick Higgins pressure on the private label market generally. The poor weather conditions have continued +353-1-641 0403 into Q3 and, as a result, management do not expect volume growth this year to meet their [email protected] medium term guidance. In the UK, volumes were up 12% in Q2 as it benefits from the introduction of a new carbonated soft drinks production line.

While not a direct peer, Britvic will also be negatively impacted by the continuation of poor weather into July seen by Refresco. That said, we did not factor in much of an improvement in Britvic’s performance for Q4 (-0.5% vs. -0.7% in Q3) so we remain comfortable with our FY16 forecast for the Group (6.7% EBIT growth).

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ARYZTA Flowers lowers guidance

Flowers Foods, the US bakery company, reported flat Q2 sales last night, when the impact of Recommendation: Buy acquisitions are excluded. The company noted that the US bakery market is increasingly Closing Price: €34.72 competitive and that category volumes have been weak. It reduces its EPS growth guidance Liam Igoe for the year by 1% to 4%. +353-1-641 9450

[email protected] Almost half of ARYZTA’s sales emanate from the US, although its sales are targeted into specialty segments. ARYZTA will report its FY16 results on September 26th, when we anticipate EPS will decline 12% owing, in part, to margin pressure arising from US restructuring leading to lower headline growth forecast for FY16 (-2.6% forecast for North America).

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Kerry Group Symrise sees strong H1 growth

Symrise reported a strong performance in H116, including its Flavour & Nutrition division, Recommendation: Buy where constant currency growth was +8%. The company noted that it continues to beat Closing Price: €77.00 industry growth which it says is growing at 2-3% (within flavours & fragrance). Liam Igoe

+353-1-641 9450 Kerry Group reported a 1.3% increase in its H1 lfl sales within the taste & Nutrition [email protected] Division. However, excluding price deflation, Kerry’s volumes increased by 3.5%.

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Cairn Homes Construction industry lobby group submits pre-Budget submission

The Irish Times business section leads this morning with warnings that poor infrastructure is Recommendation: Buy hindering new home construction according to the pre-Budget submission from the Closing Price: €0.98 Construction Industry Federation (CIF). The CIF is calling for increased spending on housing, Eamonn Hughes roads, water treatment facilities, schools and other services in the upcoming Budget. +353-1-641 9442

[email protected] The federation has made a list of key projects it believes the Government should prioritise to address the demand for new housing. The CIF recognises the recently announced €200m infrastructure fund announced by the new Housing Minister as a move in the right direction, but wants more to be done. The article notes prior work by the federation on key zoned sites that cannot be developed due to lack of roads, water and waste services, name-checking sites in Kilternan, Fortunestown, Clongriffin, Belcamp, Swords, Edmonstown and Cherrywood.

As an industry lobby group, the CIF is always going to provide its wish-list ahead of budget time (October), but the case for additional housing is clearly a priority for the government, highlighted by the new Housing ministry. Measures to improve supply would be welcome for all housebuilders, including Cairn Homes, whilst we also note Cairn has sites in Cherrywood and close to Fortunestown and Clongriffin.

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Banks KBC Q2 results – lowering its Irish impairment charge guidance

KBC has reported Q2 results this morning. In Ireland, it has reported €30m of net income, Eamonn Hughes +353-1-641 9442 up from €23m in Q1 and €2m in Q215. Net interest income is up from €56m in Q1 to €59m [email protected] in Q2 helped by lower funding and liquidity costs. The loan book continues to shrink, down 1% qoq due to ongoing deleveraging in the corporate loan book and retail mortgages (-5% and -3% yoy respectively). Deposits were up 2% qoq and 11% yoy. Costs were down 2%, with a cost income ratio of 63%.

KBC recorded a net €1m write-back in the quarter, after a net €3m write-back in Q1, driven mainly by a change in house price inflation and pool migrations. Impaired loans continued to reduce and we note KBC has reduced its FY16 impairment charge guidance for Ireland to €0- 40m from the lower end of the €50-100m range previously.

KBC is the last of the five Irish banks to report, so the read-through for the others is minimal at this stage since they have all reported already. All the same, the reduction in full year impairment guidance is directionally helpful for read-through for the others.

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Draper Esprit Conversocial lands a contract with Icelandair

Conversocial has announced a partnership with Icelandair to provide a social customer Recommendation: Buy engagement platform. Launching the initial integration with Facebook Messenger and Twitter, Closing Price: £3.03 the new partnership enables Icelandair to deliver automated and human engagement to its customers with private, in-the-moment service no matter where they are. Gerry Hennigan +353-1-641 9274

[email protected] Icelandair has simultaneously launched a bot for Facebook Messenger to handle reservations alongside Conversocial’s Facebook Messenger integration. This represents the first live client for Conversocial employing an automated messenger bot for flight bookings, thus providing instant access to more than 3m passengers per year. No financial details were provided.

As of April ’16 Conversocial contributed £5.4m to a Draper Esprit portfolio NAV at IPO of £76.4m. Draper Esprit has a 15.9% fully diluted interest in Conversocial.

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CPL Resources PageGroup results highlight Brexit uncertainty

th In its Q2 trading update on July 12 , PageGroup reported Group NFI up 8% YoY (3.7% cc). Recommendation: Buy The UK (24% of NFI) was reportedly down 2.3% cc and EMEA (43% of NFI - includes Closing Price: €4.80 Ireland) up 22.7% YoY (13.6% cc). At the time, the outlook pointed to “continued uncertainty in the UK following the referendum result” coupled with “ongoing challenges in Gerry Hennigan +353-1-641 9274 some of our larger markets”. [email protected]

PageGroup, in its interim results to June this morning, reported revenue of £575.9m (+5.5% cc), gross profit of £299.2m (+3.6% cc) and operating profit of £47.1m (+12.1% cc). Of relevance to CPL is PageGroups commentary surrounding the EMEA and UK markets. EMEA recorded an increase in NFI of 12% cc, with growth in excess of 20% achieved in Austria, Belgium, the Netherlands and Sweden. The UK saw a decline in NFI of 1.3% cc with trading conditions more difficult within Michael Page (-3% YoY), which operates at higher salary levels. The group remain mindful of the ongoing macro uncertainty in the UK.

Commentary from PageGroup this morning doesn’t come as a surprise with respect to the UK market. In contrast, Adecco released its Q2 trading update (10th August) indicating “no material Brexit impact”. CPL’s exposure to the UK market is solely focused on Healthcare and Pharma sectors and, as such, we see limited read across for CPL who report FY16 results on the 1st September.

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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 27.72 22,610 -0.3 4.3 9.5 3.8 -0.1 1.8 4.2 10.4 17.4 13.8 AIB Group 7.10 19,390 1.4 9.2 18.3 6.6 1.6 6.5 12.6 13.4 13.6 24.8 HeidelbergCement 77.85 15,447 0.6 6.6 13.6 2.9 0.8 4.0 8.1 9.5 15.0 13.7 11.83 15,247 -2.1 0.9 5.4 -21.2 -1.9 -1.5 0.3 -16.2 14.2 11.2 Kerry Group 77.00 13,537 -1.3 -0.2 -2.5 0.9 -1.1 -2.6 -7.2 7.3 23.7 21.1 Wolseley 42.39 11,024 0.7 2.3 7.2 14.8 0.6 -2.5 1.3 4.9 16.8 14.8 IAG 4.03 8,182 -1.2 3.7 7.3 -34.1 -1.0 1.2 2.1 -29.9 5.6 4.7 Mondi 16.10 7,817 0.8 5.0 17.4 20.7 1.0 2.4 11.8 28.3 12.7 12.2 Paddy Power Betfair 91.90 7,692 0.1 7.9 11.7 1.2 0.0 2.9 5.5 -7.5 29.8 24.5 DCC 68.80 6,070 0.4 2.2 4.0 21.6 0.3 -2.5 -1.8 11.1 21.0 24.6

Indices ISEQ performance

% Price 1 Day 1 Week 1 Mth Ytd ISEQ 5,909.33 -0.85 3.41 5.89 -12.99 6,800 FTSE 100 6,866.42 0.22 3.50 4.18 10.00 6,600 6,400 DAX 30 10,650.89 -0.39 4.73 10.61 -0.86 6,200 CAC 40 4,452.01 -0.36 3.03 6.24 -3.99 6,000

FTSE Eurofirst 300 1,354.10 -0.28 2.41 4.48 -5.80 5,800

Nasdaq 5,204.59 -0.40 0.87 5.00 3.94 5,600 S&P 500 2,175.49 -0.29 0.54 2.14 6.44 5,400 Dow Jones 18,495.66 -0.20 0.77 1.92 6.14 5,200 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nikkei 225 16,735.12 -0.18 4.05 10.78 -12.08

Exchange Rates

Current Px 1 day Px 1 Week Px Dec15 Avg Ytd

Stg/€ 0.858 0.855 0.838 0.737 0.791 STOXX 600 performance US$/€ 1.116 1.111 1.117 1.086 1.115 CHF/€ 1.091 1.091 1.086 1.087 1.094 400 390 JPY/€ 113.042 113.226 113.177 130.676 122.649 380 Bonds 370 360 Yield 1 Day Yld 1 Wk Yld 1 Mth Yld 3 Mth 350 340 US 2 Yr 0.68 -0.03 0.68 0.08 -0.04 330 US 10 Yr 1.51 -0.04 -0.04 0.14 -0.26 320 310 UK 2 Yr 0.09 -0.00 -0.11 -0.03 -0.29 300 Aug-15 Nov-15 Feb-16 May-16 Aug-16 UK 10 Yr 0.53 -0.05 -0.27 -0.21 -0.88

BD 2 Yr -0.65 -0.02 -0.04 -0.65 -0.13

BD 10 Yr -0.11 -0.03 -0.07 -0.11 -0.24

Irish 10 Yr 0.33 -0.02 -0.14 -0.10 -0.53

Commodities FTSE 250 performance

% Current 1 day 5 day 1 Mth 1 Yr 18,000 Brent (ICE $/bbl) 44.05 -2.07 -0.50 -5.80 -12.62 17,500 Gasoline (NYM $/Gal) 1.30 -3.33 -5.44 -5.06 -23.18 17,000 Heat Oil (NYM $/Gal) 1.31 -1.22 -0.20 -6.93 -17.44 16,500 Nat.Gas 2.56 -2.07 -7.61 -8.57 -9.89 Gold $/oz 1,347.70 0.50 0.54 -0.48 22.85 16,000 Silver $/ozt 20.34 3.22 0.57 3.12 36.66 15,500

Copper U$/MT 4,874.50 2.00 1.71 3.49 -5.35 15,000

Wheat $/BU 4.22 1.14 1.38 -3.05 -19.74 14,500 Aug-15 Nov-15 Feb-16 May-16 Aug-16

Source : FactSet

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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.

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Goodbody has provided investment banking services to , Cairn Homes, CRH, Hibernia REIT, IAG, Paddy Power Betfair, Permanent TSB and Wireless Group in the past 12 months.

Goodbody Stockbrokers acts as corporate broker to AIB Group, Applegreen, ARYZTA, Cairn Homes, Datalex, Draper Esprit, FBD Holdings, First Derivatives, Grafton Group, Greencore, Hibernia REIT, ICG, Kingspan, , Paddy Power Betfair, UDG Healthcare, and Wireless Group 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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