Morning Wrap

Today ’s Newsflow Equity Research 01 Oct 2015 Upcoming Events Select headline to navigate to article

Ryanair Still shaking up the industry Company Events 05-Oct easyJet; Pre Close Statement IAG; September 2015 Traffic Stats Tullow Oil Credit facilities unchanged 06-Oct easyJet; September 2015 Traffic Stats Norwegian Air Shuttle; September 2015 Traffic Stats 07-Oct SAS; September 2015 Traffic Stats Tesco; Q2 2016 Results Economic View Ireland’s competitiveness ranking moving 08-Oct Air France-KLM; September 2015 Traffic Stats in the right direction Mondi; IMS Mondi; Q3 2015 Results

GameAccount Network Foxwood’s and GameAccount end Simulated Gaming relationship

Gaming Amaya receives approval to operate in NJ – likely to lead to increased competition Economic Events

Ireland Irish Financials Nama remains ahead of target on senior 01-Oct Live Register Monthly Change 02-Oct September Exchequer Returns bonds 05-Oct Services PMI Ireland Composite PMI Ireland

Green REIT Full planning permission for Dawson St United Kingdom development, build-work to commence 01-Oct UK PMI Manufacturing 05-Oct UK Composite PMI

Hibernia REIT #pre-let at Cumberland House to at United States 01-Oct US Manufacturing PMI €50psf ISM Manufacturing 02-Oct Change in Nonfarm Payrolls 05-Oct ISM Non-Manf. Composite Permanent TSB Setting up of a mortgage product review US Composite PMI group Europe 05-Oct Retail Sales YoY Eurozone Services PMI

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Ryanair Still shaking up the industry

The carrier has applied for slots at Paris CDG and Paris Orly airports in a report in the French Recommendation: Buy press, quoting Michael O’Leary. According to MOL, new services from these airports would Closing Price: €13.05 not be at the expense of Paris Beauvais and added that Ryanair also has projects at Lyon, Mark Simpson Toulouse, Bordeaux and several other French airports. "For now it is not a matter of opening +353-1-641 0478 new bases there but new lines," he said. [email protected]

This follows recent announcements of Ryanair basing an aircraft at Malpensa and the start of a new Amsterdam Schiphol– service. In that context, we are seeing a major push this year by Ryanair in to primary airports in addition to maintaining operations at its original ‘secondary’ bases. This has been most clearly seen this year at Fiumicino, which will grow calendar year 2015 originating seat capacity by some 60% to 1.6m seats, while growing capacity at Ciampino by 1% yoy to 2.9m seats.

In the same article in Les Echos, Michael O'Leary said the carrier wants to develop its presence in major airports with reference to the fact that Ryanair could feed network carriers at their respective bases. "We have already had discussions about this topic with IAG, TAP, Aer Lingus, Virgin Atlantic, Norwegian. I think we will be able to announce a few deals next summer."

Conversely, The Irish Independent carries an interview today with Ryanair chairman, David Bonderman, who questions this plan saying "I myself am a sceptic on that because if you're going to continue focusing relentlessly on low cost and low prices, you can't be doing things that are inefficient. Trying to co-ordinate flights, if that's what you do, with a long-haul carrier makes for inefficiency."

Following Ryanair is never dull given the rapid changes and growth being seen currently and the radical ideas being debated internally. As such, we think the airline will continue to drive change across the European industry, lift returns for investors in so doing and remains a core buy recommendation in our coverage universe.

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Tullow Oil Credit facilities unchanged

A brief statement from Tullow this morning indicates that post the latest bi-annual Recommendation: Hold redetermination of its Reserve Based Lending (RBL) facility that its debt capacity of $3.7bn Closing Price: £1.69 remains unchanged. As of September 30th cash and undrawn facilities stood at $2.1bn. Gerry Hennigan

+353-1-641 9274 While clearly welcome, and a relief in the context of general market concern over [email protected] E&P debt capacity, the news should not come as a surprise, in our view, following recent commentary at the analyst briefing on September 23rd. At the time management clearly indicated that any impact from lower oil prices would be counteracted by higher Jubilee reserves (banks had yet to reflect past upgrades from Tullow’s reserve auditors – ERC).

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Economic View Ireland’s competitiveness ranking moving in the right direction

There are numerous ways in which competitiveness can be measured, ranging from unit Dermot O’Leary +353-1-641 9167 labour costs to rankings compiled by an array of international organisations. On the latter, [email protected] the World Economic Forum’s Global Competitiveness Ranking (GCR) is one of the most closely followed. The GCR ranks 140 countries using a total of 113 different indicators. Its latest ranking was published yesterday and reveals that Ireland continues its slow ascent up the league table.

For 2015, Ireland ranks in 24th position in the rankings, up one place on last year. At its worst point in 2009-2012, Ireland ranked in 29th position. As with any analysis of this kind, it is important to look behind the headline details. The GCR measures competitiveness across 12 “pillars”. Ireland ranks strongly in terms of goods market efficiency (7th), institutions (12th), health and primary education (12th) and labour market efficiency (13th). These are good indicators of why Ireland is able to continue to attract high levels of FDI on an ongoing basis. In terms of the weaknesses, Ireland ranks poorly in infrastructure (27th), financial markets (61st) and macroeconomic environment (87th). The poor ranking on the final component here is a function of the high levels of debt and will improve over time. Infrastructural deficits will be reduced by the recently announced capital spending plan. The most concerning take-away though relates to the ease of access to loans (116th) and soundness of banks (126th). One would have thought, given the improvement in the capital position and profitability, that the ranking of Ireland’s banking system would have been substantially higher at this stage.

One cannot focus solely on one indicator of competitiveness, but the latest GCR indicates that while Ireland continues to make progress, there are a number of areas that need to be watched closely. Within the area of “infrastructure”, housing is likely to be front and centre.

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GameAccount Network Foxwood’s and GameAccount end Simulated Gaming relationship

A Foxwood’s Casino press release overnight has announced that Foxwood’s Casino and Recommendation: Buy GameAccount have terminated their Simulated Gaming partnership. The release states that Closing Price: £0.45 both parties have mutually agreed to a managed exit from their relationship over a period of Brian Devitt no less than six months, in reflection of the parties’ “divergent commercial objectives in the +353-1-641 9415 United States.” [email protected]

Given that Foxwood’s was one of the few contracts reported to be outperforming during H1, this will come as a disappointment for GAN. The loss of a contract such as Foxwood’s will add pressure to the group to sign new Simulated Gaming deals and build on its existing contracts quicker.

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Gaming Amaya receives approval to operate in NJ – likely to lead to increased competition

It has been announced overnight that Amaya, the Canadian listed entity that owns Gavin Kelleher +353-1-641 0423 PokerStars and FullTilt, has received approval from the DGE to operate both brands in the [email protected] regulated New Jersey online gambling market. This approval from the DGE follows the usual long regulatory review process. Amaya currently has a deal with Resorts Casino to provide Kevin McDermott +353-1-641 9162 poker and casino offerings in New Jersey, while Amaya also has approval to provide B2B [email protected] online and land based solutions in New Jersey. Brian Devitt +353-1-641 9415 Amaya has been looking to bring its brands, particularly PokerStars into the New [email protected] Jersey regulated market for some time now. The New Jersey market has seen an improvement in growth trends more recently, which has been encouraging but this has been mainly related to casino. Poker, Amaya’s main strength, has remained weak for some time. While the launch of PokerStars into the market is likely to boost the overall online market in New Jersey, Amaya’s entry will undoubtedly lead to increased competition.

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Irish Financials Nama remains ahead of target on senior bonds

Nama yesterday announced that it has redeemed a further €1.75bn of senior bonds, marking Eamonn Hughes +353-1-641 9442 its third redemption in 2015. The agency has now redeemed €21.1bn of bonds, or 70%, of [email protected] the original €30.2bn of senior debt issued by the agency. Nama intends to redeem 80% of the senior bonds by the end of 2016, and “remains on course to redeem all of our Senior Dermot O’Leary +353-1-641 9167 Debt by 2018”, two years ahead of the original schedule. [email protected]

Prior to yesterday’s redemption, the agency had c.€10.8bn of senior bond outstanding and recently indicated its intention to get this figure down to c.€8bn by year end. This leaves a further €1bn of likely redemptions in the final quarter.

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Green REIT Full planning permission for Dawson St development, build-work to commence

Press reports this morning indicate that Green REIT has secured full planning permission for Recommendation: Buy the development of its Dawson Street office block. An Taisce had lodged an objection to the Closing Price: €1.48 initial planning approval from Dublin City Council, but An Bord Pleanala yesterday ruled in Eamonn Hughes favour of the REIT. Green REIT intends to demolish the 1970s 5-storey building with a gross +353-1-641 9442 floor space of 5,010 sqm and replace it with a 6-storey 12,756 sqm building. [email protected]

The project is now anticipated to commence in Q4, with completion in Q317. Based on a €50 sq ft rental assessment, the building could contribute an ERV of €4.5m, though possible voids may only see the building start to contribute from Q318. The site cost was €24m and Green estimates build costs of c.€35m, with Green guiding a possible net development value of €81m. This would imply a 7.6% yield on cost, a potential 37% uplift on cost.

In its recent FY results, Green indicated it was hopeful of a favourable ruling by end September, a particularly accurate assessment. As such, whilst the decision is in line with expectations, it will allow for the process to commence to drive higher valuations out of the asset.

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Hibernia REIT #pre-let at Cumberland House to Twitter at €50psf

Hibernia REIT announced yesterday that it has agreed a pre-let with Twitter for 85,000 sq ft Recommendation: Buy of office space at Cumberland House at €50 per sq ft. Twitter has agreed a 20 year lease, Closing Price: €1.27 with tenant only break options after 12 and 15 years. The deal will add a further €4.6m to Eamonn Hughes Hibernia’s rent roll. Hibernia will now proceed with the refurbishment of the 112,000 sq ft +353-1-641 9442 building at a cost of €27m. The building was originally acquired for €49m in March 2015, [email protected] which implies a yield on cost of just over 6% solely from the Twitter lease, though when fully let, we expect Cumberland House to generate a yield on cost of over 8%.

We expect the independent valuers to take a positive view on this pre-let deal when revaluations are due at the HY16 stage (which coincidentally finished yesterday, September 30th). Having de-risked this asset and announced it has also fully let Wyckham Point, we believe this will now free up Hibernia to develop other assets in its portfolio.

The deal had been widely flagged in the Irish media in recent weeks, however, confirmation is welcome, given Twitter had reportedly previously been close to a deal with KWE at Baggot Plaza (BOI took that property at €47.50 sq ft). Grade A prime CBD offices are trending around 4.65% in the latest data from CBRE, but say using a capitalisation rate of c.5% would imply a valuation of the building closer to €120m if the building was fully let, which would represent a potential c.€45m profit for Hibernia, adding c.7c to NAV. So we are likely to revisit our current €1.42 end 2016 NAV in due course. Hibernia will release interim results on November 12. We reiterate our Buy call.

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Permanent TSB Setting up of a mortgage product review group

Permanent TSB yesterday confirmed that it has set up a Mortgage Product Review Group Recommendation: Hold (MPRG) to review legacy mortgage accounts in the bank. The MPRG will review the bank’s Closing Price: €4.75 full mortgage suite and establish if there are any instances where contractual terms and Eamonn Hughes conditions attached to mortgages are not being fully honoured by the bank and/or whether +353-1-641 9442 other material issues such as the provision of key information at relevant times require [email protected] further information. A member of the bank’s executive committee will lead the MRG, which will work alongside external independent expertise

The establishment of the MPRG follows the identification earlier in the Summer of approximately 1,100 mortgage customers at the bank who, following an investigation by the Central Bank of Ireland, were found in particular circumstances to have lost a contractual right to a tracker rate mortgage. This led to a Mortgage Redress Programme announced in late July through which impacted customer accounts are now being put back into the correct position and the bank is paying compensation to the relevant customer accounts holders.

PTSB has indicated that it has no expectation that there are widespread systemic issues, but given events earlier in the summer, it feels it appropriate to undertake the exercise. The announcement late yesterday afternoon follows media speculation last weekend on the issue.

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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 2015f 2016f AIB Group 0.08 39,263 2.7 - -3.8 -5.1 0.2 -0.2 0.3 -6.5 24.3 27.3 CRH 23.50 19,168 2.3 -6.1 -12.0 18.1 -0.2 -6.3 -8.1 16.3 21.0 12.9 Ryanair 13.05 18,059 0.7 -5.4 6.1 33.0 -1.8 -5.6 10.7 31.0 13.1 14.6 IAG 5.88 11,953 3.2 -1.0 9.1 21.0 0.6 -1.2 13.8 19.1 11.2 8.0 Wolseley 38.58 10,033 5.5 -8.4 -8.3 4.7 3.5 -9.3 -5.4 8.6 16.0 14.7 67.15 11,805 3.9 2.3 1.2 17.7 1.4 2.1 5.6 15.9 22.4 20.5 Bank of Ireland 0.35 11,270 3.9 4.8 -2.0 11.2 1.3 4.6 2.3 9.5 10.9 11.4 easyJet 17.77 7,001 1.9 1.0 5.6 6.3 -0.0 0.1 8.9 10.3 12.8 12.0 Mondi 13.83 6,715 3.9 1.2 -6.4 31.7 1.4 0.9 -2.4 29.7 13.4 12.2 Travis Perkins 19.66 4,856 2.0 -1.7 -4.0 5.9 0.1 -2.6 -1.0 9.8 15.6 13.3

Indices ISEQ performance

% Price 1 Day 1 Week 1 Mth Ytd 7,000 ISEQ 6,167.41 1.84 -3.34 -3.72 18.05 6,500 FTSE 100 6,061.61 2.58 0.49 -2.98 -7.68 6,000 DAX 30 9,660.44 2.22 0.50 -5.84 -1.48 CAC 40 4,455.29 2.57 0.51 -4.25 4.27 5,500

FTSE Eurofirst 300 1,370.54 2.56 0.32 -4.31 0.15 5,000 Nasdaq 4,620.16 2.28 -2.79 -3.27 -2.45 4,500 S&P 500 1,920.03 1.91 -0.97 -2.64 -6.74 Dow Jones 16,284.70 1.47 0.03 -1.47 -8.63 4,000 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Nikkei 225 17,388.15 2.70 -3.77 -7.95 -0.36

Exchange Rates

Current Px 1 day Px 1 Week Px Dec14 Avg Ytd

Stg/€ 0.737 0.741 0.732 0.776 0.728 STOXX 600 performance US$/€ 1.116 1.122 1.115 1.210 1.115 CHF/€ 1.091 1.091 1.092 1.202 1.063 420

JPY/€ 133.688 134.550 134.292 145.079 134.801 400

Bonds 380

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

US 2 Yr 0.63 -0.03 0.63 -0.11 -0.01 340 US 10 Yr 2.04 -0.01 -0.11 -0.18 -0.31 320

UK 2 Yr 0.56 -0.00 -0.02 -0.12 -0.16 300 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 UK 10 Yr 1.66 0.02 -0.03 -0.19 -0.38

BD 2 Yr -0.25 0.02 0.00 -0.25 -0.02

BD 10 Yr 0.59 0.01 -0.01 0.59 -0.18

Irish 10 Yr 1.22 - 0.01 -0.20 -0.39

Commodities FTSE 250 performance

% Current 1 day 5 day 1 Mth 1 Yr 18,500

Brent (ICE $/bbl) 48.37 0.29 -0.47 -10.67 -48.91 18,000

Gasoline (NYM $/Gal) 1.37 0.26 -2.09 -8.83 -43.93 17,500 Heat Oil (NYM $/Gal) 1.54 0.81 -0.53 -9.63 -42.00 17,000 Nat.Gas 2.52 -2.40 -1.56 -6.14 -38.75 16,500 16,000 Gold $/oz 1,114.00 -1.60 -2.85 -1.85 -8.43 15,500 Silver $/ozt 14.65 0.62 -2.27 1.45 -14.38 15,000

Copper U$/MT 5,093.00 1.66 -0.10 -0.04 -24.39 14,500

Wheat $/BU 5.13 1.79 0.98 5.72 7.33 14,000 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15

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 was the co-lead manager in an offering of securities in Permanent TSB Group Holdings Plc in the last 12 months. Goodbody was the co-lead manager for Hibernia REIT Plc for a public fund raising in the past 12 months. Goodbody is acting as a financial advisor to CRH on the proposed acquisition of certain assets being disposed by Lafarge and Holcim. International Consolidated Airlines Group has been an investment banking client of Goodbody’s in the past 12 months. Goodbody Stockbrokers acts as corporate broker to AIB Group, , Datalex, FBD Holdings, First Derivatives, Grafton Group, Greencore, Hibernia REIT, ICG, Kingspan, , Paddy Power, UDG Healthcare, and UTV Media A complete list of the companies that Goodbody Stockbrokers makes a market in is available at Regulatory Disclosures

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Other disclosures

We would like to inform you that Eamonn Hughes holds shares in AIB Group We would like to inform you that Colm Foley holds shares in Permanent TSB

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