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Morning Wrap Today ’s Newsflow Equity Research 12 Feb 2021 08:41 GMT Upcoming Events Select headline to navigate to article Dalata Hotel Group - Buyer interest supportive of Company Events valuation 16-Feb Kerry Group; FY20 Results 18-Feb Air France-KLM; FY20 Results Irish Banks CB focuses on resilience / Sustainable finance Barclays; FY20 Results 19-Feb IRES REIT; FY20 Results moving centre stage Kingspan; FY20 Results NatWest Group; FY20 Results UK Economic View UK GDP figures capture a bleak 2020 SEGRO; FY20 Results Economic Events Ireland United Kingdom 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 Euronext Dublin 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 Dalata Hotel Group - Buyer interest supportive of valuation A brief RNS was released last night after the close noting that JP Morgan had been engaged Recommendation: Buy to intermediate the purchase of up to c.€110m of Dalata shares at a price between €3.50 Closing Price: €3.37 and €3.75. They engaged with certain shareholders to solicit interest, but decided not to proceed. The interested party is noted as a European corporate with multiple minority Paul Ruddy +353 1 641 6024 holdings. If the buyer had been successful it would have purchased c.29 -31m shares in the [email protected] company if it had invested €110m, or 13-14% of the shares. The indicated buying range would represent a 1-8% premium to the year to date average closing price and a 12-20% premium to the YTD lows. Although a transaction did not take place, we believe this is supportive of valuation given there was new buyer interest and also because it would appear that sufficient existing shareholders were unwilling to sell at those levels. From a wider UK & Ireland leisure perspective, buyer interest appears to be ramping up with Platinum Equity Partners launching an unsuccessful £665m takeover bid for Marston’s and former Greene King CEO Rooney Anand launching a fund to purchase UK pub assets. We recently updated Dalata forecasts to reflect the continued COVID related restrictions, and remain positive on it as a recovery play. Home… This document is intended for the sole use of Goodbody Stockbrokers and its affiliates Page 2 12 Feb. 21 Goodbody Morning Wrap Irish Banks CB focuses on resilience / Sustainable finance moving centre stage The FT’s European Financial Forum was held yesterday, where the highlight for me was an Eamonn Hughes outstanding presentation and Q&A session with Mairead McGuinness, the European +353-1-641 9442 Commissioner for Financial Stability, Financial Services and the Capital Markets Union. In a [email protected] domestic context, the Central Bank governor also presented where he noted the themes of Barry Egan reshaping the financial sector, the digital transformation and financing the transition to a +353-1-641 6059 more sustainable future, but wanted to focus in particular on resilience. [email protected] In relation to the short-term outlook of the pandemic, the governor noted that the EBA’s 2021 EU-wide stress test will help regulators assess the resilience of the European banking sector. Stress test assessments of the domestic banking sector in Q420 highlighted its ability to deal with the pandemic, but he noted this resilience was not without limits, so banks need to continue to monitor the highly uncertain macro-financial outlook. Moving to the insurance sector, the Governor reinforced the Central Bank’s comments last week after the landmark business interruption legal test case ruling that insurers must pay valid BI claims, where language is ambiguous to err on the side of the customer and where insurers fail to do so, the CB “wont hesitate to take action accordingly”. He touched on the need for more regulation of the market-finance part of the financial sector and non-bank sector. Also, the CB must continue to develop with the fast pace of digital transformation, plus the transition to a low carbon economy constitutes major structural change, including for policymakers. He noted that he intends to give a much wider address on the issue of climate change in the coming months. On the issue of engagement, he reinforced recent comments that the CB is prioritising engagement with the public and stakeholders and is starting a consultation aimed at improving its engagement. Elsewhere, in conjunction with the EFF, the Department of Finance yesterday published its Ireland for Finance Action Plan, its strategy for development of Ireland’s international financial services sector, which focuses on Sustainable Finance, Diversity and Regionalisation. This will incorporate a need to develop a national sustainable finance roadmap and continue to raise awareness of the responsible investment agenda. Clearly, the UN’s climate conference, COP26 in Glasgow in early November, can act as an incentive and accelerate embracing these key issues through 2021. The paper highlights that more work is also needed to enhance diversity across the entire financial services industry. Finally, the regional distribution of financial jobs outside Dublin has risen from 30% to 35% over the past 5 years and frameworks must be put in place to continue to support this development. The document outlined 46 action points and a quarterly calendar of actions. This document is intended for the sole use of Goodbody Stockbrokers and its affiliates The warnings of the governor for the insurance sector will have grabbed the headlines yesterday in relation to dealing with customers promptly and fairly after the recent BI test case, but it is patently clear that from the wider discussions at the FT European Financial Forum yesterday, the Governor’s speech and the Ireland for Finance publication that sustainable finance and climate risk is moving front and centre for the banking sector. We published on this topic last week (a 50-page note), looking at the evolving regulatory backdrop which is embedding Environment, Social and Governance factors and risks into bank strategy, governance and risk management. Plus, we also evaluated the ESG credentials of the domestic banks. Looking at third party ratings on ESG metrics, AIB is in pole position domestically. Sustainalytics ranks AIB at number 71 out of 1,025 banks globally, with BOI at 176. SAM scores AIB at 61 (out of 100), with BOI at 44 and CDP (environment only) rates AIB an A (leader status) with Bank of Ireland on B. Home… Page 3 12 Feb. 21 Goodbody Morning Wrap UK Economic View UK GDP figures capture a bleak 2020 The ONS released its monthly and quarterly GDP estimates for December 2020 and Q42020, Dermot O’Leary respectively. The easing of restrictions in the UK in December 2020 saw the economy grow +353-1-641 9167 [email protected] 1.2% mom, following a decline of -2.3% in November 2020. Additionally, the December figure contributed to a +1% GDP growth rate in Q42020. This follows from a Q32020 growth Shaun McDonnell +353-1-641 9127 rate of 7.8%. However, these growth figures are coming from a low base following the [email protected] lockdown in Q22020, and the level of GDP remains 7.8% below its Q42019 levels. The annual change in GDP for 2020 was -9.9%, the largest annual decline on record. The services sector was the main driver of growth in December (+1.7% mom). Of the fourteen sub-sectors in the services sector, eleven of those contributed positively to headline growth. The largest of these contributors were the consumer facing sectors that benefited from the easing of restrictions, such as Accommodation and Food services (+0.29 pp), Wholesale and Retail Trade (+0.23 pp) and Other Service Activities (+0.23 pp). The growth in services in December contributed to a Q42020 growth rate of 0.6%, although the positive contributors differ largely from those of the December figures (Health and Social Work Activities +0.75 pp, Education +0.4 pp, Professional, Scientific & Technical Activities +0.39), likely due to consistent events such as work-from-home, and the opening of schools throughout most of the quarter. Meanwhile, Accommodation and Food Services (-0.95 pp) and Wholesale and Retail Trade (-0.28 pp) continued to be impacted by restrictions for much of Q42020. Finally, the minor recovery in the services sector in December 2020 does not take away from the annual decline in the sector of 8.6% The construction sector contributed negatively to monthly growth, falling 2.9% from November and ending seven consecutive months of positive growth following the end of lockdown in May 2020. Construction performed strongly over Q42020 showing a growth rate of 4.6%, to which growth in new private housing contributed heavily (+6.7%). Finally, the annual decline in construction output was 12.5%, unsurprising giving the impact of COVID- 19 related restrictions over the year. All in all, this morning's data confirm that 2020 was indeed a bleak year for the UK economy, in which the construction sector, the hospitality sector, and the retail sector were the most adversely affected by being in and out of pandemic related restrictions. The improvement in quarterly GDP growth in H22020 is likely to come to a halt in Q12021 for the UK economy due to the ongoing lockdown.