Monday, 10th June 2019 Key Themes This Week Major Markets Last Week The Week Ahead Broad market indices recovered significant portions of the losses experienced in May in the first week of June. The S&P 500 (down 6.8% in May) added Value Change % Move 4.66%, while the STOXX 600 in Europe (down 6.55% in May) added 3.42%. This week the market will be assessing the fallout from Friday’s Jobs number, Dow 25984 1168.90 4.71% the meeting of the G20 finance ministers and US trade policy. In Europe, the S&P 2873 121.28 4.41% UK conservative party begin the process for selecting a new leader and Euro Area finance ministers meet in Luxembourg with financial penalties due to Nasdaq 7742 288.95 3.88% Italian debt levels on the table. Full employment is one of the Fed’s two primary mandates and despite the MSCI UK 16027 333.82 2.13% lack of wage inflation, the US economy has generated consistent jobs month on month and the unemployment rate has been below 4% since the beginning DAX 12045 318.54 2.72% of 2018. Friday’s jobs number, 75,000 jobs added (est. 180,000), was weaker than the market had anticipated. The print has given the dovish argument for ISEQ 6202 119.18 1.96% rate cuts some additional credence as the probability of a cut in July moves to 80%. The weakening trend in global economic data and subsequent softening of central bank policy means the data is more important than ever as policy Nikkei 21134 723.54 3.54% decisions can change quite quickly. US data will continue to drive bond H.Seng 27549 648.33 2.41% markets as US rates already have two cuts priced in for 2019. We will be watching PPI and CPI on Tuesday and Wednesday with Retail Sales and STOXX600 379 8.38 2.26% Industrial Production on Friday. The consumer has always been the driving force underpinning the US economy, a weak retail sales number would further concern the market. Brent Oil 63.47 2.19 3.57% Ahead of the G20 leaders meeting later in June, finance chiefs met this Crude Oil 54.2 0.95 1.78% weekend in Japan. The resulting communication left little hope of optimism as Gold 1327 2.14 0.16% after rocky negotiations, the communique was almost aborted. The final draft highlighted global growth had stabilised, but risks remained to the downside and the leaders agreed to work towards common rules to tackle multinational corporations reducing their corporate tax bills. US Treasury secretary Steven Silver 14.7853 0.00 -0.01% Mnuchin confirmed a meeting is expected between President Trump and Copper 263.65 -1.35 -0.51% President Xi at the end of the month. The previous G20 leaders meeting resulted in a 5-month trade truce to allow both sides to negotiate. Setting CRB Index 409.61 -6.35 -1.53% aside US-Sino relations, President Trump did not implement the 5% tariff on Mexico as he tweeted that he had “full confidence” Mexico would address immigration. The president did not fully withdraw the treat of tariffs but stated Euro/USD 1.1299 0.01 0.52% that “We can always go back to our previous, very profitable position on tariffs”. President Trumps use off tariffs as an implementation stick will be a Euro/GBP 0.8891 0.00 0.16% concern for markets as it increases the volatility of global trade relations. It GBP/USD 1.2708 0.00 0.35% also reduces President Trumps/the USs credibility when negotiating with Chinese counterparts. Value Change This week also sees the beginning of the selection process for the leadership German 10 Year -0.234 -0.03 of the Conservative party. The process is expected to continue well into July UK 10 Year 0.842 -0.02 with the eventual winner being announced around the 22nd of July. Nominations close today at 5pm and the selection process will begin with US 10 Year 2.131 0.06 MPs narrowing the field to two candidates, who are then put to the membership. Boris Johnson remains the favourite candidate receiving endorsements from both leavers and remainers. As the process rumbles Irish 10 Year 0.303 -0.12 forward, there is no progress being made on Brexit negotiations leaving the UK in an extended limbo scenario ahead of its October deadline. Spain 10 Year 0.568 -0.12 Last week saw markets advance after a weak month in May, however, we Italy 10 Year 2.365 -0.20 continue to see trends in both corporate earnings and global macroeconomic indicators weaken, implying further weakness in equity markets. Overall, we remain cautious on our outlook to markets and are advising clients to continue BoE 0.75 0.00 to increase allocations to more defensive equities and reduce exposure to more cyclical/economically sensitive names. ECB 0.00 0.00 This week we cover off on Applegreen, Greencoat Renewables, Sanofi, Fed 2.50 0.00 Kingspan and CRH All data sourced from Bloomberg CANTOR FITZGERALD IRELAND LT D th Weekly Trader Monday, 10 June 2019 Opportunities this week CFI Research Team Applegreen Closing Price: €5.10 • On the back of the recent derating we see significant upside over the next 12 months for Applegreen. • Since the oversubscribed equity raise in September last year, Applegreens 12m forward P/E has come down from 22x to 14.5x. This is an 27% discount to its average since listing in 2015. • Last week it released a trading update for the first five months of the year confirming it was performing in line with expectations. It confirmed Welcome Break’s performance so far has been “satisfactory”. However, it noted the challenging conditions with Brexit weighing on consumer sentiment. The US business is performing “well” and it will explore new opportunities. • The business continues to grow with 9 new sites added since the beginning of the year. • Regardless of the Brexit headwinds, the Welcome Break acquisition was an impressive move by management. It is a well Key Metrics 2019e 2020e 2021e invested, diversified, cash flow generative and has a history of Revenue (€’Mn) 2888.5 3066.5 3268.3 positing consistent earnings growth. • There will be considerable synergies realised this year. EPS (€) 0.33 0.39 0.44 • Welcome Break will be c.20% EPS accretive to the group next Price/ Earnings 15.48x 13.02x 11.46x year. We expect Applegreen to full acquire the business over the coming years. Div Yield 0.39% 0.41% 0.61% • We expect the net debt to fall below 3x EBITDA next year (c.3.9x at Source: All data & charts from Bloomberg & CFI the end of 2018) • The legacy Applegreen business continues to perform well, posting 20% underlying EBITDA growth in 2018. We expect double digit Total Return 1 Mth 3 Mth YTD earnings growth over the medium term. Welcome Break will add Applegreen 2.8% -11.6% -16.3% further to this. Source: All data & charts from Bloomberg & CFI • Maintain an outperform rating. Greencoat Renewables Closing Price: €1.12 • €570m market cap Irish leading renewables energy utility. Portfolio of 384MW Wind turbine assets as of FY 2018 spread across the Island of Ireland. All assets produce guaranteed cash flow based on production with Ireland considered to be the best location in Western Europe for electricity production from wind. With the industry expected to grow to 8GW by 2024, we expect Greencoat Renewables to grow toward 1GW of wind capacity over time • The Green party wave across Europe is likely to lead toward further subsidies and incentives to invest in wind and solar • Greencoat Renewables is expected to pay a dividend of 6c in 2019 which is payable quarterly. That equates to a 5.5% dividend yield • Greencoat raised 140m shares at €1.055 in an over-subscribed equity placing in March. Group loan to value as subsequently dropped to 36% and they have financial flexibility to add an Key Metrics 2019e 2020e 2021e additional 150MW of wind assets • Due diligence is ongoing on over 200MW of Wind Assets so we Revenue (€’Mn) 62.6 74.9 79.9 expect announcements over the next 3-6 months • Sister company, Greencoat UK Wind, has delivered 95% total return EPS (€) 0.09 0.11 0.11 for its IPO investors and has outperformed the UK index by 65% over the same period Price/ Earnings 12.15x 10.46x 10.27x • At 12x 2020 earnings and offering a 10% forward cash flow yield, we Div Yield 5.31% 5.40% 5.40% think average analyst target price of €1.25 looks conservative Source: All data & charts from Bloomberg & CFI Total Return 1 Mth 3 Mth YTD Greencoat 0.9% 5.6% 12.2% Source: All data & charts from Bloomberg & CFI CANTOR FITZGERALD IRELAND LT D 2 th Weekly Trader Monday, 10 June 2019 Opportunities this week CFI Research Team Sanofi Closing Price: €78.32 • Sanofi is a global leader in healthcare generating €35bn in revenue across 170 countries. They are diversified across Generics, Vaccines, Primary Care (Diabetes drugs) and Specialty Care (Rare blood diseases etc). They are geographically diversified with revenue generated across US, Europe and ROW evenly. • Shares have consolidated sideways for 5 years as valuations have de-rated due to weakness in its Diabetes & Cardiovascular sales. A return to earnings growth in H2 2018 and a much better than expected result in Q1 earnings has revived investor interest as new drugs (Dupixent, Alprolix, Eloctate, Cerexyme, Myozyme, Fabrazyme) within their Immunology, rare blood and rare diseases divisions drive group sales and earnings.