Morning Wrap Today ’s Newsflow Equity Research 22 May 2019 09:29 BST Upcoming Events Select headline to navigate to article C & C Group Underlying business stable while MC&B Company Events recovery continues 22-May Britvic; C & C Group; FY19 Results IRES REIT Speculation as preferred bidder for €285m Cairn Homes; AGM portfolio Close Brothers Group; Q319 Trading Update Great Portland Estates; FY19 Results Marks & Spencer; FY19 Results Britvic Solid H1 with full year on track 23-May Hibernia REIT; FY19 Results Mitchells & Butlers; Q219 Results Harworth Group Brief AGM trading update Great Portland Estates FY19 results- Beating expectations but caution ahead UK Banks Close Brothers upbeat 3Q19 statement points to a strong quarter UK Banks Paragon Banking Group reports a very strong set of interim numbers Economic Events Draper Esprit Portfolio Update Ireland US Building Materials ABI back in positive territory but 22-May PPI Apr19 28-May Retail Sales Apr19 needs to be watched Codemasters Group Codemasters sign GRID Alonso United Kingdom 22-May CPI Apr19 agreement PPI Apr19 UK Economic View Latest Brexit compromise may be the Retail Price Index Apr19 23-May Retail Sales Apr19 end of the road for the PM 28-May BBA Mortgage Approvals Apr19 Economic View OECD economic projections with risks to United States the downside 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 the Irish Stock Exchange 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 C & C Group Underlying business stable while MC&B recovery continues C&C this morning reported FY19 results, with adjusted EBIT of £104.5m (+21% yoy), in-line Recommendation: Buy with estimates and the Group’s pre-close statement. This was driven by: i) the first-time Closing Price: €3.58 contribution from MC&B of €15.7m (GBY €15.4m); ii) organic revenue growth of 3.2% (GBY +4.9%); and iii) a flat margin outcome at 15.7% (GBY 15.6%). Net debt at year end was Patrick Higgins +353-1-641 0403 €301.6m, better than our €309m forecast due to better working capital in MC&B. [email protected] Within MC&B, management note that customer service levels have returned to normalised levels and customer retention, particularly in Matthew Clark (96%), is encouraging. Working capital performance continued to improve through the year and this is expected to continue into FY20. MC&B are now in the ‘simplification & optimisation’ phase of their recovery plan, with cost-savings in logistics and goods not for re-sale identified. Over time, the Groups believes it can increase the penetration of its beer and cider brands into the on-trade by leveraging off Matthew Clark’s distribution reach. Overall, management anticipates a ‘steady- state’ operating margin of 3%+ (GBY FY21 of 2.7%) across the businesses. By division the Group delivered: i) 2% revenue growth in Ireland (2.6% volumes) with Bulmer’s +1.6%, growing its share of the cider market by 110bps in the period with particularly strong growth in the off-trade channel. Encouragingly, on-trade share also stabilised following the creation of a new branded sales team. Ireland margins declined 30bps to 18.4% reflecting the mix effect of strong wholesale growth and the effect of a €2.6m pension credit unwind; ii) Great Britain underlying revenue growth of 6.3% (vols +2.8%), with Magners +4.4% (vs GB cider was +2.7%) and Tennent’s -0.2% (in-line with the market). Magners growth was delivered in H1 as it benefitted from good summer weather and the World Cup. Tennent’s gained significant share in the Scottish grocery market as weaker brands and private label lost ground following the introduction of MUP; iii) Super-premium and wholesale grew strongly in both core markets; and, iv) International division revenues declined 3.2% (-5% forecast) reflecting continued disruption associated with changes in distributors in EMEA and Asia Pacific. In terms of outlook, management note that despite the current geo-political uncertainty and challenging weather-related prior year comparative it anticipates double-digit EPS growth in FY20 (GBY +13%), with MC&B particularly strong. Thereafter, it anticipates mid-to-high single digit annual EPS growth (GBY 7.5% FY21), assuming ‘steady-state’ market conditions. Overall, we consider today’s update as positive and look forward to this afternoon’s CMD which should provide This document is intended for the sole use of Goodbody Stockbrokers and its affiliates more detail on the Group’s strategy, particularly for MC&B. Home… Page 2 22 May. 19 Goodbody Morning Wrap IRES REIT Speculation as preferred bidder for €285m portfolio The Irish Times this morning notes that IRES REIT has come out as the preferred bidder for Recommendation: Hold the Marathon XVI portfolio, currently being marketed by Savills and Eastdil secured. In a Closing Price: €1.61 release to the market just before 9am, IRES confirmed the speculation and noted that the deal is subject to completion of due diligence, board approval, and exchange of binding Colm Lauder +353-1-641 6042 contracts. The XVI portfolio, earning its name from the 16 locations over which the 815 units [email protected] are spread, was launched at a guide price of €240m, with the Irish Times article noting that IRES is set to pay €285m for the apartments. The Marathon portfolio has a current annual rent roll of €14.7m, so the price reflects a net initial yield of 4%, with the prospect of this rising further to c.4.8-5% as the 2% vacancy in the portfolio is let and rent reviews are progressed (though this will be a slow process given the 4% rent cap). IRES can also bring considerable cost efficiencies to the management of these assets and we expect this to provide a significant boost to the net yield (IRES currently achieve a gross to net on its portfolio of 19% versus 25% in the wider market). The sale would be the largest single PRS transaction in the Irish market for several years and comes after the recent Marathon disposal of the Heston South Quarter scheme for €222m. The Irish Times article notes that the units in the XVI portfolio are let at below the prevailing market rate at €1,530 per month, meaning the portfolio comes broadly in-line with the current average rent of €1,654 for properties in IRES’s portfolio. This would be a significant and important transaction for IRES as it continues to scale up its portfolio. The REIT likely just about has the financial capacity under its current credit facilities and in the context of REIT legislation to make this acquisition with existing funding facilities, however medium and longer-term projects (like its agreed forward purchases and its own developments like Rockbrook) will require further consideration of funding in the future. Home… This document is intended for the sole use of Goodbody Stockbrokers and its affiliates Page 3 22 May. 19 Goodbody Morning Wrap Britvic Solid H1 with full year on track Britvic this morning a H1 adj. EBIT of £83.7m which compares to our forecast for £83.9m Recommendation: Buy and represents 4% growth yoy. The Group delivered total organic revenue growth of 1.9% in Closing Price: £9.38 the period (vs. +1.5% forecast), Underlying margins (after adjusting for the pass-through impact of the sugar tax) were up 30bps in the period (vs. +40bps forecast) coming in at Patrick Higgins +353-1-641 0403 10.9%. [email protected] The key highlights from today’s statement are as follows: i) GB Stills retained momentum with revenue growth of 4.8% (vs. +2.5% forecast) in period continued momentum of Robinsons and a positive mix effect; ii) GB Carbs revenue performance (+2.2%) was driven by pricing (+7.2% ex sugar tax). As expected volumes declined (-4.5%) were in part due to the tough prior year comparative which included an element of forward buying ahead of the sugar tax introduction; iii) France remains weak at -5.5% (vs. -3.5% forecast) driven by volumes (-8.4%) largely due to declines in private label sales; iv) In Ireland, the group focused on value over volume, particularly for Ballygowan which resulted in broadly flat revenues though volumes declined 4.5%; v) Brazil delivered a strong performance in the period (+8%) driven by with strong growth in the ready-to-drink portfolio; and, vi) International also performed strongly (+20% vs. 18% forecast) driven by new business wins in the travel and export channel and further expansion with Walmart in the US. Overall reported EBIT margin was 10.9% which is broadly in-line with our estimates. When adjusting for the pass-through impact of the sugar levy, underlying margin was up 30bps. Brand contribution margin declined 320bps to 35.5% which reflects the impact of the sugar levy though we note is c. 110bps better than our estimate. Net debt was a touch worse than forecast at £654m (£640m forecast) which largely reflects a higher than expected working capital outflow due in part to Brexit preparations.