Morning Wrap

Today ’s Newsflow Equity Research 27 Apr 2016 Upcoming Events Select headline to navigate to article

CRH Strong outturn in Q116, particularly in the US Company Events 27-Apr CRH; Q1 IMS Glanbia; Q1'16 resutls Kerry Group Guidance maintained for FY16 Kerry Group; Q1'16 results 28-Apr of Ireland; Q1'16 results Howden Joinery; Trading update

Glanbia Q1 Volume growth across main divisions

Dalata Hotel Group Very encouraging start to 2016

DS Smith Trends continue, forecasts unchanged

First Derivatives Thomson Reuters strategic partnership Economic Events

Ireland Economic View Irish government upgrades GDP forecasts 28-Apr Retail Sales Mar'16 but warns on rising risks 29-Apr Unemployment Rate Apr'16 Residental Property Prices YoY Mar

United Kingdom Hibernia REIT Further acquisition opportunities for 27-Apr GDP YoY Hibernia REIT? 28-Apr Nationwide House Price NSA YoY

United States Mincon Group Peer Q1 results; weak trends remain in 27-Apr Pending Home Sales MoM 28-Apr GDP Annualised QoQ 29-Apr U. of Michigan Sentiment Chicago Purchasing Manager

Europe 29-Apr CPI Apr'16 Unemployment Rate GDP SA YoY

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

CRH Strong outturn in Q116, particularly in the US

CRH issued a positive trading update for the first three months of 2016 with a strong Recommendation: Buy performance in the US. For the seasonally less significant first half, total Group EBITDA is Closing Price: €25.87 expected to be “close to €1bn” which compares with Goodbody’s estimate of €984m. Management also noted that it expects to continue to make progress in EBITDA in H216. As Robert Eason +353-1-641 9271 a result, we see no change to our top of consensus FY16 EBITDA forecast of €3.2bn. [email protected]

The Americas division was the standout performer, aided by better weather conditions and improving construction activity. Sales growth of 22% with strong growth seen across all three divisions (Materials +27%, Products +22% and Distribution +17%).

Sales in Europe were in line with proforma 2015 with the Lightside division reporting 6% sales growth compared to a flat outturn in Materials and Distribution. On a geographic basis, Switzerland remained difficult and the UK heavyside was mixed. This contrasts with the Netherlands that continues to recover, France showing signs of recovery and Germany being stable.

Asia, as expected, strong cement demand in the Philippines resulted in sales increasing by 12%.

Overall, this is a strong statement from CRH with the underlying business, particularly the Americas, performing better than our expectations. Overall, the strong start to the year underpins our positive stance in the stock and we therefore reiterate our BUY recommendation with a price target of €32.00.

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Kerry Group Guidance maintained for FY16

Kerry reported a solid start to FY16, with total lfl volumes up 2.9% in Q1 (Goodbody forecast Recommendation: Buy 3.5%), including 3.1% from Taste & Nutrition (Goodbody 3.8%) and 2.1% from Consumer Closing Price: €80.71 Foods (Goodbody 3.0%). However, margins were 10bps better than forecast. Liam Igoe

+353-1-641 9450 The lfl volume growth in Taste & Nutrition of 3.1% was slightly behind our expectations [email protected] (3.8%). Geographically, the Americas (3.1%) and the Far East (8.7%) were, as usual, the main drivers, while EMEA weakened (from 1.2% in Q416 to 0.2% in Q116). Beverages remain a pillar growth segment for Kerry, while above average performance was also noted in culinary systems and the foodservice channel.

Following the rationalisation within Consumer Foods and the pruning of some underperforming businesses, its core chilled foods business is also benefiting from some improvement in consumer sentiment in Ireland and the UK, with lfl volume growth of 2.1%. The division is also seeing good development in mainland Europe with some of its snacking products.

The continued weakness in dairy and meat markets means that price deflation will continue to feature in FY16. However, this is not a material issue in terms of profits as it flows through the cost chain. Margins were 10bps ahead of our forecasts.

Kerry has maintained FY16 guidance for reported EPS growth of 6 - 10% (Goodbody +8.4%) despite the greater currency headwind since the beginning of the year. We do not expect to make any material changes to our forecasts following today’s release, though we may tweak our lfl growth forecast lower for Consumer Foods, but offset by an increase in forecast margin growth. Home…

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Glanbia Q1 Volume growth across main divisions

Glanbia maintained its guidance for +8-10% constant currency EPS growth in its Q1 IMS this Recommendation: Buy morning. With volume growth achieved across each of its main divisions in Q1. Closing Price: €17.56

Liam Igoe GPN saw lfl volume growth of 2% in Q116. The key components were strong high single digit +353-1-641 9450 growth in US branded volumes, partly offset by lower volumes in private label and some of [email protected] its international markets - some of which had a relatively strong performance in Q115. As the year progresses we expect lfl volumes will increase significantly as international comps get easier and US lfl volumes continue to deliver strong growth. Branded revenue is being guided at c. +5% for FY16 (after pricing declines), suggesting to us that branded volume sales should be 7.5% for the full year. There will likely be some further reduction in contract sales in FY16 (though these had already fallen to 15% of volumes) which will reduce overall forecast lfl volumes for GPN (branded and contract combined) by 1%.

Volume growth of 1.5% was attained within GI due to the $85m investment last year which enables Glanbia to convert a higher proportion of its basic whey into higher valued WPI. This more than offsets the negative impact of lower output prices due to the collapse of dairy product prices. Cheese continued to operate at full capacity in Q116 and volumes were little changed yoy. Customised Solutions, the main non-dairy ingredients business within Glanbia, is putting in another solid performance and we expect delivered low single digit growth in the period.

Lower fertiliser prices prompted a reduction in lfl sales in Glanbia Ireland (-6.2%). However, new product development and cost control within the dairy business should mean higher margins and profits within this division for the full year. The Ireland based GIIL associate (40% owned), is seeing higher volumes (+8.0%) due to the abolition of milk quotas, for which the new plant at Belview was built last year. However, the crash in dairy product prices is resulting in some margin pressure, though this is not material in a Group context.

We do not expect to make material changes to our forecasts, with a modest reduction in GPN volume growth (1%) due to lower contract volumes offset by higher margins. EBITA growth is forecast across all its three consolidated businesses in FY16.

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Dalata Hotel Group Very encouraging start to 2016

Dalata has this morning released a statement ahead of its AGM today. Management said that Recommendation: Buy the Group has enjoyed a very encouraging start to 2016 with the markets it operates in Closing Price: €4.43 performing ahead of its expectations. Management also stated that the integration of the Kevin McDermott acquired hotels is progressing smoothly and plans for investment in refurbishment and +353-1-641 9162 upgrade works at the Tara Towers hotel are being advanced. The extension and upgrade [email protected] works at Clayton Hotel Chiswick, are close to completion. Management re-iterated that the pipeline for new opportunities remains strong and that it will continue its disciplined approach to increase its portfolio of hotels.

This is a very encouraging update from Dalata. In Q116, we have seen strong STR data in both and Ireland Regional, with RevPar +22.3% and +23% respectively. Although, we do note that the yoy comps will get tougher from May onwards. In London, the market has seen an overall decline in RevPar of 4.3% in Q116. Following the acquisitions so far this year management still has a further €100m to invest in the business. The strong start to the year gives us a lot of comfort on our FY16 forecasts of EBITDA of €81.3m. We re-iterate our BUY recommendation.

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DS Smith Trends continue, forecasts unchanged

DS Smith has released a brief pre close trading update for the FY16 to April end. Recommendation: Hold Management indicates that performance is in line with its expectations. Goodbody FY16 Closing Price: £3.83 EBITA forecasts currently sit at £375.5m compared to consensus of £372.7m. David O'Brien

+353-1-641 9230 Trends are said to have continued from those described in the March trading statement when david.a.o'[email protected] volume growth was running at +2-3%. Growth in Pan-European accounts has been particularly strong. Margins and ROCE have improved on prior year. Acquisitions are performing in line with expectations.

On first glance, we do not envisage making any material changes to FY17 forecasts. With the stock trading on a premium to Mondi and Smurfit Kappa we see better value elsewhere. Focus will be on Smurfit Kappa results next week (May 12th) when we will get more colour on pricing and a key area of interest is whether or not corrugated box prices can remain resilient given the current containerboard weakness and if increasing OCC prices can stimulate testliner prices.

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First Derivatives Thomson Reuters strategic partnership

First Derivatives announced this morning a strategic partnership with Thomson Reuters, Recommendation: Buy whereby Thomson Reuters will employ FD’s Kx technology to power its latest Data-as-a- Closing Price: £16.70 Service platform, Velocity Analytics. The platform provides real-time data and custom Gerry Hennigan analytics from more than 70 exchange, broker and vendor sources for use by quantitative +353-1-641 9274 analysts, traders and compliance departments. The service will be delivered from the world’s [email protected] largest private financial markets cloud network, Thomson Reuters Elektron.

The partnership, which was secured following a comprehensive review of real-time and in-memory technologies by Thomson Reuters not only endorses the technical credentials of First Derivatives, but underpins its franchise within the Capital Markets industry and provides confidence in forecast projections (FY17 revenue of £129m, EBITDA of £25m, £26.2m on a FD basis).

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Economic View Irish government upgrades GDP forecasts but warns on rising risks

As part of the European budgetary process the Irish government has published its draft Juliet Tennent +353-1-641 9469 Stability Programme Update which includes the Department of Finance’s (DoF) latest [email protected] forecasts for the Irish economy. In it they upgrade their forecast for GDP growth to 4.9% for the year (from 4.4% at budget time) and forecast 3.9% growth in 2017. These are broadly in line with our own forecasts of 5% and 3.7% for 2016 and 2017 respectively. However, they also warn on rising international risks, highlighting increased uncertainty associated with emerging markets, China and of course Brexit.

The DoF’s figures also confirm that the underlying budget deficit for 2015 was -1.3% and tweak their forecast for this year to -1.1% from -1.2%.

While the DoF remains upbeat in relation to the outlook for Ireland they have highlighted the rising international risks. This, they stress, underlines the need to maintain prudent fiscal policy and competitiveness. Something that should inform the policies of the next government.

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Hibernia REIT Further acquisition opportunities for Hibernia REIT?

Hibernia REIT has been linked in the Irish Times Commercial Property Section with three Recommendation: Buy Dublin 2 office blocks coming on the market, amongst other bidders. London & Regional is Closing Price: €1.29 selling three buildings at Lower Mount Street and Clanwilliam Place, seeking offers of €54m. Colm Foley The buildings are only partially let, but substantial value lies in the potential for +353-1-641 6042 redevelopment. The three blocks have a floor space of 93,600 sq ft, with c.60% vacancy. [email protected]

Earlier this year, Hibernia paid €26.5m for Marine House, a 41,000 sq ft office block, which is part of the seven block Clanwilliam Court development, so may well have an interest in the latest sales process. After recent acquisitions, Hibernia has about €275m of additional investment capacity.

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Mincon Group Peer Q1 results; weak trends remain in mining

Two of Mincon’s peers in the mining services industry, Sandvik and Atlas Copco, have Recommendation: Hold released first quarter results giving us insight into the current market backdrop. Both Closing Price: €0.76 companies noted the challenging market conditions that prevail in the mining equipment Nuala McMahon market. +353-1-641 0498

[email protected] Sandvik’s Mining division saw organic order intake declining 8% yoy with revenues “largely stable at -1%”. The group did note Europe and Australia “recorded a positive development in revenue”, but the mining segment “continues to see challenges”.

Atlas Copco, which reported yesterday, indicated that orders received and revenues were down 12% and 15% yoy in mining and rock excavation. The group experienced growth in all business areas, except in Mining and Rock Excavation, where the backdrop is described as challenging and “demand for mining equipment continued to be weak”.

The above commentary doesn’t come as a surprise. Mincon’s niche offering saw it weather a challenging market last year. The group recorded an operating profit decline of 3.5% yoy at FY15 results (9th March) versus Sandvik and Atlas Copco, which saw operating profit -40% and +16% respectively for the year to December. Mincon has a solid balance sheet, net cash at Dec end of €38.6m, which gives it firepower for potential M&A.

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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 AIB Group 8.35 22,804 0.6 -8.2 -7.3 25.4 0.4 -7.7 -10.6 32.1 16.1 23.5 CRH 25.87 21,101 1.4 0.8 4.9 -3.1 1.2 1.4 1.2 2.1 16.3 12.9 Ryanair 13.18 18,043 0.8 -0.4 -4.3 -12.2 0.7 0.2 -7.7 -7.5 14.3 10.9 HeidelbergCement 78.27 15,530 -0.8 -1.2 6.1 3.5 -1.0 -0.7 2.3 9.0 14.3 13.6 Kerry Group 80.71 14,189 -0.5 -4.0 -0.8 5.8 -0.7 -3.4 -4.3 11.4 24.5 21.5 IAG 5.36 10,886 1.5 0.8 -1.2 -12.3 1.3 1.3 -4.7 -7.6 5.9 4.6 Wolseley 38.96 10,132 -0.2 0.3 0.3 5.6 -0.2 2.7 -1.5 5.7 15.6 13.0 Paddy Power Betfair 87.65 7,337 4.7 -6.1 -5.8 -3.5 4.7 -3.8 -7.4 -3.4 28.4 23.5 Bank of Ireland 0.27 8,582 0.8 8.2 1.9 -21.6 0.6 8.8 -1.7 -17.4 10.7 9.9 Mondi 12.84 6,235 -0.6 -5.3 -2.4 -3.7 -0.8 -4.8 -5.8 1.4 11.8 11.3

Indices ISEQ performance

% Price 1 Day 1 Week 1 Mth Ytd 7,000

ISEQ 6,223.19 1.22 -0.49 -0.03 -8.37 6,800 FTSE 100 6,284.52 0.38 -1.89 2.92 0.68 6,600 DAX 30 10,259.59 -0.34 -0.87 4.14 -4.50 6,400 CAC 40 4,533.18 -0.28 -0.73 4.70 -2.24 6,200 FTSE Eurofirst 300 1,367.03 0.21 -0.59 3.79 -4.90 6,000 Nasdaq 4,888.28 -0.15 -1.05 2.40 -2.38 S&P 500 2,091.70 0.19 -0.43 2.74 2.34 5,800 Dow Jones 17,990.32 0.07 -0.35 2.71 3.24 5,600 Apr-15 Jul-15 Oct-15 Jan-16 Nikkei 225 17,353.28 -0.49 2.84 2.06 -8.83

Exchange Rates

Current Px 1 day Px 1 Week Px Dec15 Avg Ytd

Stg/€ 0.775 0.777 0.790 0.737 0.776 STOXX 600 performance US$/€ 1.131 1.127 1.138 1.086 1.109 CHF/€ 1.100 1.098 1.092 1.087 1.095 420

JPY/€ 125.700 125.007 124.351 130.676 126.431 400

Bonds 380

Yield 1 Day Yld 1 Wk Yld 1 Mth Yld 3 Mth 360

US 2 Yr 0.86 0.02 0.86 -0.02 0.01 340 US 10 Yr 1.93 0.02 0.15 0.03 -0.07 320

UK 2 Yr 0.56 0.04 0.09 0.08 0.15 300 Apr-15 Jul-15 Oct-15 Jan-16 UK 10 Yr 1.66 0.05 0.16 0.21 -0.03

BD 2 Yr -0.50 0.01 0.00 -0.50 -0.04

BD 10 Yr 0.30 0.04 0.13 0.30 -0.07

Irish 10 Yr 0.97 0.04 0.10 0.16 0.09

Commodities FTSE 250 performance

% Current 1 day 5 day 1 Mth 1 Yr Brent (ICE $/bbl) 45.74 2.83 2.72 13.11 -29.93 18,000 Gasoline (NYM $/Gal) 1.51 - -0.18 3.22 -24.03 17,500 Heat Oil (NYM $/Gal) 1.30 - -0.62 7.36 -32.77 17,000 Nat.Gas 2.03 -1.50 -1.74 12.51 -19.72 Gold $/oz 1,241.70 0.23 -0.60 1.70 4.96 16,500 Silver $/ozt 16.95 0.53 -2.14 10.93 7.08 16,000

Copper U$/MT 4,935.50 -1.30 -1.79 0.09 -18.09 15,500

Wheat $/BU 4.78 - -5.11 3.19 -2.20 15,000 Apr-15 Jul-15 Oct-15 Jan-16

Source : FactSet

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