Morning Wrap

Today ’s Newsflow Equity Research 09 Dec 2020 08:41 GMT Upcoming Events Select headline to navigate to article

Howden Joinery Blow out performance in November Company Events 10-Dec DS Smith; Q221 Results First Derivatives CFO Change Marston's; Full year results 15-Dec SSP Group; FY20 Results Vistry Group Better cash generation leads to potential for FY20 final dividend Economic View The final game of poker? Irish Press reports that EU Commission not in favour of relenting on divvies Irish Banks AIB on A list with CDP highlights climate credentials FBD Holdings Government plans new reforms to reduce costs

Economic Events Ireland 10-Dec CPI Nov20 15-Dec Trade Balance Oct20

United Kingdom 10-Dec GDP Oct20 Trade Balance Oct20 Construction Output Oct20 Industrial Production Oct20 Production Oct20 15-Dec ILO Unemployment Rate Oct20 16-Dec CPI Nov20 PPI Nov20 Retail Price Index Nov20

United States

Europe

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

Goodbody Stockbrokers UC, trading as “Goodbody”, is regulated by the Central of Ireland. In the UK, Goodbody is authorised and subject to limited regulation by the Financial Conduct Authority. Goodbody is a member of and the 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

Howden Joinery Blow out performance in November

Howden Joinery has released an unscheduled trading update. Management notes that sales Recommendation: Hold in Period 12 (Nov 1-28) increased by 17.2% on a same depot basis and 18.8% on a reported Closing Price: £6.42 basis. This compares to sales growth of c.12% in Period 7-11 and we estimate that this was largely driven by the elongated sales drive around Period 11. It appears that stock Robert Eason +353-1-641 9271 availability is a key driver of share gains. [email protected]

Gross margin performance remains unchanged but given the strength in the top line

performance, management now expects FY20 PBT to be “around 10% above the top end of current analyst forecasts” (range £123-152m). This implies a 17% upgrade to our forecasts. Such performance also points to continued robust trading conditions for Grafton, Eurocell and Travis Perkins from an rmi perspective.

Overall, a very positive trading update from Howden Joinery and highlights the strength of the rmi market.

Home…

First Derivatives CFO Change

First Derivatives has announced this morning that Graham Ferguson is set to step down from Recommendation: Buy January 1st 2021 as Chief Financial Officer. The group has appointed Ryan Preston, the Closing Price: £29.20 Deputy CFO, as CFO and he will take a seat on the Board. His prior experience includes CFO roles at INM and OCO Energy Retail, as well as senior finance positions at Tesco. Graham is Gerry Hennigan +353-1-641 9274 set to stay as an employee until end of June 2021 to assist with the transition and help to [email protected] deliver the groups strategic initiatives.

Home…

Page 2 09 Dec. 20 Goodbody Morning Wrap

Vistry Group Better cash generation leads to potential for FY20 final dividend

Vistry Group has released a trading update this morning in which it flags the consideration of Recommendation: Buy reinstating an FY20 final dividend. Closing Price: £8.63

Management has reiterated guidance for PBT in FY20 to be at the upper end of the range of Dudley Shanley +353-1-641 9174 £130-140m (Goodbody at £142m). However “good cash management at an individual [email protected] business level” and the ongoing synergy benefits from a “successful combination” coupled with the continuation of strong trading momentum, leads management to guide for a FY20

net debt position of “no greater than £40m”. Indeed the group also states that a modest cash position by year end is a possibility. For context, Goodbody were forecasting Net Debt levels of c.£220m by year-end with Bloomberg consensus at £183m. Given better than expected cash generation, the Board will now consider reinstating an FY20 final dividend. We had forecast a reinstatement in FY21. If you assume a dividend cover 2.5x (in-line with the 2.5x it has flagged as a proxy for the interim 2021 dividend), it implies a yield of c.2.4% in FY20 (moving to 5.5% in FY21 on our numbers).

Elsewhere in statement, the group reiterates its expectation for FY21 PBT of c.£310m and states that whilst it is likely the group will carry an average net debt position through 2021, it is targeting being net cash by year-end (Goodbody at £79m of debt, Consensus at £96m of debt).

Overall it is comforting to see that that the Group is very focused on cash management, in turn leading to capital returns ahead of expectations. Given the group’s reiteration of FY21 guidance, we are not concerned that the cash generation has come at the expense of essential WIP / Land spend. We see substantial upside to Vistry at these levels, something which we outlined in our recent initiation note which can be sent on request.

Home…

Page 3 09 Dec. 20 Goodbody Morning Wrap

Economic View The final game of poker?

They say that it is always darkest before the dawn. In the context of the pivotal dinner Dermot O’Leary tonight between European Commission President Ursula von der Leyen and British PM Boris +353-1-641 9167 [email protected] Johnson on a future trade deal, the mood is extremely dark ahead of it, probably as dark as we have seen it since prior to the agreement on the Northern Ireland protocol last year. Whether this is a prelude to a breakthrough at tonight’s meeting remains to be seen.

Within the EU, there are clearly some more than others that are keener to get a deal. While France appears to be playing bad cop once again, Germany and Ireland, among others, are trying to play good cop. They all agree, however, that Ursula von der Leyen and Michel Barnier should speak with one voice for the entire of the EU. Irish Minister for Foreign Affairs, who up to now has been among the more optimistic voices to getting a deal, was decidedly downbeat in his comments yesterday. Speaking on Irish media last night, he noted that tonight’s meeting was pivotal and that if we did not see progress then we are most likely moving to a no-deal scenario. This followed similar comments by Taoiseach Micheál Martin in the Dáil yesterday. These comments stem from the gloomy assessments from Michel Barnier on Monday.

We don’t know whether Johnson or von der Leyen plays poker, but tonight’s meeting can better be described as such. The tone of the EU side in recent days may be to reset expectations among European citizens, but also be a negotiating ploy to get the UK to blink first. The UK may know this. Classic game theory. The motivations on both sides to get a deal though still hold.

Home…

Page 4 09 Dec. 20 Goodbody Morning Wrap

Irish Banks Press reports that EU Commission not in favour of relenting on divvies

Press reports this morning suggest that the European Commission is coming out against Eamonn Hughes allowing banks to pay dividends, just ahead of the ECB decision tomorrow. According to the +353-1-641 9442 Irish Independent, a senior European official in a media briefing yesterday noted "It's not [email protected] logical to allow dividends because the strategy right now is to get banks to deplete their Barry Egan capital in the service of lending". In addition, separately, the deputy governor of the Irish +353-1-641 6059 Central Bank suggested that continued uncertainty, a need to preserve capital for lending [email protected] and reputational issues for banks all speak in favour of extending the regulator’s existing recommendation. He suggested that his preference would be to hold off for another six

months but “whether we can practically do that is a real challenge.” Elsewhere, at the EU

level, the Commission is next week anticipated to propose creating regional asset management agencies to allow banks to pool NPEs and facilitate portfolio sales to investors. The plan from the Directorate-General for Financial Stability, & Capital Markets Union is due to be published on Tuesday. The broad thrust of the plan is to help mid or small-sized banks in particular to address rising NPEs where the lack of resources makes it difficult to focus on NPEs according to an official. The European Banking Authority (EBA) has been creating standardised templates for loan portfolios, seen as a precursor to the move.

The ECB is anticipated to increase its asset purchase programme by €500bn from its current €1.35trn total and may consider raising the exemption for lenders on negative rates on minimum reserves from 6x to 8x. The EU Commission is separate from the ECB, but the coordination of the economic response to the pandemic probably hints at broad alignment on dividends. The removal of the dividend ban is seen by most investors as critical to the investibility of the sector. We would reiterate the interview with main ECB regulator last week, Andrea Enria, and his reference to some banks being “all over the place” in relation to provisioning and segregating banks into three tiers. As we noted last week, that feels to us they will leave the ban in place tomorrow, give banks Q4 results to get their houses in order and then start separating the good from the bad post publication of results and/or the outcome of the EBA stress tests which starts in January and concludes in July. Our forecasts show dividends at the Irish banks start from FY21 earnings. On the EU plan for regional asset management agencies, Ireland has vast experience from NAMA and at the banks and domestic regulatory level, so that plan is likely to be of more use to other jurisdictions given Ireland already has many of the skills.

Elsewhere, there was a little bit of a “storm in a teacup” brewing yesterday when Ulster Bank management declined to appear at an Oireachtas Finance Committee hearing to discuss the bank’s potential exit from Ireland. Comments from the Deputy Governor of the Central Bank that the loss of a bank from the Irish market posed pushing up borrowing costs and limiting credit to customers only added to the committee’s concerns.

To be fair to UB, management felt they could not elaborate any further on the issue as the strategic review was ongoing by its parent, Natwest. As the subsidiary of a listed entity, it probably would have been inappropriate for UB management to say anything (even if aware) out of turn, but clearly the “messaging” to the committee was not welcomed. In relation to the regulator’s comments about a possible exit potentially pushing up borrowing costs and limiting credit availability, we would suggest that one of the reasons that UB/Natwest is struggling with the Irish market is the huge level of capital tied up here – 28.5% CET1 ratio – which is 2x that of peers. On the credit availability side, it is worth noting that loan to deposit ratios at the Irish banks are way below 100% - AIB is in the low 70s – so the banks are awash with liquidity, so would be available to provide any credit if needed.

Page 5 09 Dec. 20 Goodbody Morning Wrap

Home…

Irish Banks AIB on A list with CDP highlights climate credentials

An EIB survey, with some headlines in Bloomberg overnight, shows that a majority of Eamonn Hughes Europeans want the economic recovery from the pandemic to promote growth that prevents +353-1-641 9442 climate change. The survey reveals that 57% of Europeans want a low-carbon focused [email protected] recovery compared with 43% who want stimulus that boosts the economy by any means Barry Egan necessary. The survey comes ahead of the EU summit where one of the topics will be the +353-1-641 6059 bloc’s 2030 emissions-reduction target to at least 55% below 1990 levels. [email protected]

From a Irish perspective, we note the article in RTE that four Irish companies,

Kingspan, ESB, Accenture and AIB Group have been names on this year’s A List by

CDP, the EU-funded charity which runs the global environmental reporting system. There are 312 companies globally on the A list. BOI is rated B with CDP. Irish banks have been moving up the ESG rankings in the recent past. Among the ESG rating agencies, Sustainalytics ranks AIB 59 out of 972 banks globally, with a score of 16.3 (Low Risk), which is an excellent score, with BOI at a well-respected 163 out of 972.

Home…

Page 6 09 Dec. 20 Goodbody Morning Wrap

FBD Holdings Government plans new reforms to reduce insurance costs

The government yesterday published a new reform plan aimed at bringing down the cost of Recommendation: Buy insurance. The main pledges in the plan include: Replacing the Book of Quantum with new Closing Price: €7.40 guidelines on the appropriate level of personal injury awards; Enhancing the role of the Personal Injuries Assessment Board; Examining the duty of care to strengthen waivers and Eamonn Hughes +353-1-641 9442 notices to increase protections for consumers, businesses, sporting clubs and community [email protected] groups; Further strengthening transparency through the expansion of the National Claims Information Database; Monitoring whether personal injury award levels need to be capped;

Reducing insurance fraud including placing perjury on a statutory footing, thus making the offence easier to prosecute. According to RTE, the enforcement powers of the Competition and Consumer Protection Commission (CCPC) will also be strengthened, dual pricing will be examined, and an office will be set up within Government to encourage greater insurance market competition.

Consumers and the insurance industry have been calling for reform for some time and with the Tanaiste (Deputy Prime Minister) leading the reform, there will be an expectation that the reform will be delivered. Whilst clearly progress has been made to get the main commitments, it is still likely that it will take time for the reforms to implement.

Home…

Page 7 09 Dec. 20 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 . In the UK, is also subject to regulation by the Financial Conduct Authority. Goodbody is a member of 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. All opinions and estimates constitute best judgement at the time of publication and are subject to change without notice. The information, tools and material presented in this document are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities.

Conflicts of Interest Goodbody has procedures and policies in place to identify and manage any potential conflicts of interest that arise in connection with its research business. Goodbody analysts and other staff who are involved in the preparation and dissemination of research operate and have a management reporting line that is independent to its business. Information barriers are in place between the Corporate Finance arm and the Research arm to ensure that any confidential and or price sensitive information is handled in an appropriate manner.

Our Investment Research Conflicts of Interest Policy is available at Conflicts of Interest

Investors should be aware, that, where appropriate, research may be disclosed to the issuer(s) in advance of publication, in order to correct factual inaccuracies only and not to materially amend the research in any way. Goodbody is satisfied that it has operational procedures in place, which ensure that such disclosures will not compromise the report’s objectivity.

Goodbody has provided investment banking services to AIB Group, Applegreen, ARYZTA, Bank of Ireland, Cairn Homes, Collagen Solutions, Datalex, Draper Esprit, FBD Holdings, Flutter Entertainment, First Derivatives, Grafton Group, Greencore, Harworth, Hibernia REIT, ICG, Kingspan, Origin Enterprises, Playtech, Rank Group, Supermarket Income REIT, Total Produce and Yew Grove REIT 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, IPL Plastics, Kingspan, Origin Enterprises, Playtech, Rank Group, and Yew Grove REIT The list of companies for which Goodbody acts as market maker and on which it provides research, is available at Regulatory Disclosures

Page 8 09 Dec. 20 Goodbody Morning Wrap

Other disclosures

We would like to inform you that Eamonn Hughes holds shares in AIB Group

A description of this company is available at Company Descriptions

All prices used in this report are as at close of business of the previous working day unless otherwise indicated.

A summary of our standard valuation methods are available at Valuation Methodologies

A summary of share price recommendations and whether material investment banking services have been provided to these companies is available at Regulatory Disclosures

Other important disclosures are available at Regulatory Disclosures

Goodbody updates its recommendations on a regular basis. A breakdown of all recommendations provided by Goodbody is available at Regulatory Disclosures Where Goodbody has provided investment banking services to an issuer, details of the proportion of buys, holds and sells attributed to that issuer will also be included. This is updated on a quarterly basis.

The date on which stock recommendations were first released for all stocks mentioned in this report are available at https://www.goodbody.ie/assets/Reg_Disclosures.pdf. If a different recommendation has been made in the previous twelve months, this will also be disclosed here.

Recommendation Definitions Goodbody uses the terms “Buy”, “Sell” and “Hold. The term “Buy” means that the analyst expects the security to appreciate in excess of 10% over a twelve month period. The term “Sell” means that the security is expected to decline in excess of 10% over the next twelve months. The term “Hold” means that the analyst expects the security to neither appreciate more than 10%, or depreciate more than 10% over the next twelve months.

On 26th November, 2012, the terms “Add” and “Reduce” were removed from the Recommendation Definitions and both were replaced with the “Hold” recommendation. Any Previous Recommendation that refers to either an “Add” means that the analyst expected the security to appreciate by up to 15% over a twelve month period. Any Previous Recommendation to “Reduce” means that the analyst expected the security to decline by up to 15% over the next twelve months.

In the event that a stock is delisted the firm will automatically cease coverage. If however the firm ceases to cover a stock for any other reason the firm will disclose this fact.

Distribution of research to clients of Goodbody Securities Inc (GSI) in the US

GSI distributes third-party research produced by its affiliate, Goodbody GSI is a member of FINRA and SIPC GSI does not act as a market-maker.

This information was current as of the last business day of the month preceding the date of the report. An affiliate of GSI may have acted, in the past 12 months, as lead manager/co-lead manager of a publicly disclosed offer of the securities in this company. Investors should be aware that an affiliate of GSI may have provided investment banking or non-investment-banking services to, and received compensation from this company in the past 12 months or may provide such services in the next three months. The term investment banking services includes acting as broker as well as the provision of corporate finance services, such as underwriting and managing or advising on a public offer. All transactions by US persons involving securities of companies discussed in this report are to be effected through GSI.

Disclaimer While all reasonable care has been taken in the production and dissemination of this report it is not to be relied upon in substitution for the exercise of independent judgement. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you.

Private customers having access, should not act upon it in anyway but should consult with their independent professional advisors. The price, value and income of certain investments may rise or may be subject to sudden and large falls in value. You may not recover the total amount originally invested. Past performance should not be taken as an indication or guarantee of future performance; neither should simulated performance. The value of securities may be subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities.

All material presented in this report, unless specifically indicated otherwise is copyright to Goodbody. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of Goodbody.

Goodbody, Ballsbridge Park, Ballsbridge, Dublin 4, Ireland T (+353 1) 6670400 W www.goodbody.ie E [email protected] Page 9 09 Dec. 20