Date here 2009

19.11.14
Currency news: UK CPI ticks up
Today’s Treasury Events
Currency thought of the day: Politics and inflation outlook – watch out sterling
Economics: Irish Property – Bumper Christmas sales expected
09:30
UK MPC Minutes
13:30
US Housing Starts
Equities: Irish Banks – Moody's upgrades BKIR's senior debt rating
19:00
US FOMC Minutes
Equities: C&C – UK legislation could alter Pub industry’s distribution model
Upcoming Equity Events
Equities: IFG – IMS reflects a year of transition
20.11
UDG – FY Results
Equities: Datalex – Reports positive IMS; FY guidance reiterated
20.11
Kerry – Investor Day
Equities: INM – IMS shows YTD trading trends broadly unchanged
05.12
Green REIT – AGM
1m chg %
1m chg %
ECB rate
0.05
0.00
EUR/USD
1.2538
ISEQ
4,805
7.07
UK Base rate
0.50
0.00
EUR/GBP
0.8029
EUROSTOXX
3,114
5.14
US Fed Funds
0.25
0.00
EUR/AUD
1.4519
FSTE 100
6,691
6.04
LIBOR GBP 3M
0.56
-0.89
EUR/CAD
1.4218
S&P 500
2,052
8.75
LIBOR USD 3M
0.23
0.22
EUR/CHF
1.2012
Top 5 Irish Equities
EURIBOR 3M
0.08
-1.24
EUR/JPY
147.2400
1198.51
-3.21
EUR/NZD
1.5969
78.47
-8.93
EUR/ZAR
13.8095
4.27
10.56
GBP/USD
1.5616
Bank of Ireland
299.00
-0.30
GBP/EUR
1.2455
Smurfit Kappa Group
Brent oil ($)
Natural Gas ($)
Copper ($)
Last
Last
Last
Gold ($)
FX rates
Indices
Rates and Commodites
CRH PLC
Last
1m chg %
16.99
2.60
8.40
20.51
54.30
5.83
0.30
3.14
17.41
10.89
Ryanair Holdings PLC
Kerry Group PLC
Daily Deposit Rates
EUR
1 Month Notice
0.30%
1 Month
0.10%
3 Months
0.30%
6 Months
0.50%
12 Months
1.00%
1 Month Notice
0.8%
1 Month
0.40%
3 Months
0.60%
6 Months
0.80%
12 Months
1.20%
1 Month Notice
0.25%
1 Month
0.10%
3 Months
0.20%
6 Months
0.40%
12 Months
0.60%
GBP
USD
Currency
Q4'14
Q1'15
Q2'15
Q3'15
Support
Resistance
EUR/USD
0.7800
0.7900
0.7700
0.7900
1.2505
1.2575
EUR/GBP
1.2500
1.2200
1.2200
1.2200
0.8005
0.8050
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Wednesday, 19 November 2014
Currency news: UK CPI ticks up
UK CPI yesterday: The headline rate of inflation nudged up a touch in October to 1.3% from 1.2% (consensus and
Investec forecasts 1.2%). Meanwhile the PPI figures were mixed– input prices were -1.5% m/m (consensus -1.5%,
Investec -2.2%), while headline output price inflation remained steady on a year-on-year basis at -0.5% (consensus and
Investec -0.2%). Additionally the ONS house price series showed an increase to 12.1% in September from 11.7% in
August. It seems that the market isn’t convinced that today’s figures change prospects for the targeted measure of
inflation to fall below 1.0% early next year, hence sterling has remained under considerable pressure since the release.
German ZEW surprises on the upside: The German ZEW financial investor sentiment is back in positive territory, some
light relief for the German economy after a deluge of recent poor data in Q2 and Q3. All things considered, the index still
remains at very low levels but the increase from -3.6 to +11.5 was a significant improvement and hugely better than the
forecast of +0.9. A positive print points to increasing investor confidence and fingers crossed this may just be some early
signs of an economic recovery. The euro took the news well, lifting it off yesterday’s lows.
Abe calls snap election: The USD/JPY (now comfortably over 117) and most JPY crosses continued to trade at multi
year highs as Japanese PM, Shinzo Abe announced that he is to shelf a proposed Sales Tax increase for 18 months in
tandem with the announcement of a snap General Election in mid-December. Abe and his LDP party are keen to take
advantage of his current popularity to seal another term and push through his current mandate which includes an
enormous and ever increasing monetary stimulus plan in order to push Japanese inflation to the ever elusive 2% target.
Up today: Out of the UK we get to see the minutes from the Bank of England's November meeting at 09:30, although
after a dovish tone on inflation in the Quarterly Inflation Report last week, the market will be expecting very little hawkish
surprise. US housing data in the afternoon with the FOMC minutes after London closes is likely to be a big event after a
less dovish report last month. The market will be looking at how the Fed will balance its two mandates of employment and
inflation as labour market conditions tighten while falling energy prices and global disinflation persists.
Currency thought of the day: Politics and inflation outlook – watch out sterling
UK inflation ticked modestly back up yesterday (+1.3% y/y versus consensus of +1.2%) although the pound struggled to
sustain any strength against the euro and US dollar after the release. Despite the tick-up in the CPI yesterday, the outlook
for inflation looks to be particularly soft as highlighted in the Bank of England’s Inflation Report last week and in comments
from Bank of England Governor Mark Carney when he warned of ‘huge disinflationary forces’ hitting Britain. This has had
an impact on the outlook for hate hikes from the Bank of England which in turn has contributed to the weakness seen in
GBP these past few weeks (particularly against the euro). Allied to inflationary concerns is the political outlook for the UK.
We should get a reminder of this electoral uncertainty tomorrow with the parliamentary by-election in Rochester and
Strood. Defecting Conservative MP Mark Reckless is 19 to 1 on to capture the seat for UKIP (source Oddschecker), giving
the anti-EU party its second by-election victory since the summer and raising further political question marks over the
likely outturn in May. This highlights major concerns over what might happen to sterling as the general election
approaches and this before taking into consideration what looks like a massive swing to the SNP in Scotland. The
prospect of a hung parliament is now very real and such uncertainty in a run up to an election is likely to impact sterling
negatively. Though many are surprised to see EURGBP back above 0.80p this morning, perhaps these higher levels will
become more familiar in the coming months.
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Wednesday, 19 November 2014
Economics: Irish Property – Bumper Christmas sales expected
In his Budget 2015 speech delivered last month, the Minister for Finance Mr. Michael Noonan announced that the CGT
exemption for properties purchased between 7 December 2011 and 31 December 2014 and subsequently held for at least
seven years, would not be extended.
While this move had been widely expected, it was nonetheless always going to be a catalyst for accelerated disposal
activity for banks and other institutions looking to reduce their direct exposure to Irish real estate. In that regard, we note
that most of the business section of today’s Irish Times newspaper resembles an auctioneer’s catalogue. While some of
the bundles of assets up for grabs have been well-flagged, it is nonetheless useful to reflect on the range of ‘on market’
options that are currently available to prospective buyers of Irish property assets, including the domestic REITs.
The sale process being overseen by NAMA around the five property Tara Collection, a €264m office portfolio in Dublin’s
CBD will attract no end of interest, particularly given that it includes two Daniel Libeskind designed Grade A office
buildings let to Facebook valued at a combined €215m. The assets are to be offered for sale in one lot or on an individual
basis and offer a headline yield of 4.6%, but there is potential for this to rise as vacant space is let and rents re-set to
reflect the surge in office rents in the capital.
Elsewhere, NAMA is also marketing the ‘Plum Portfolio’ consisting of 588 modern apartments and 36,274 sq ft of
commercial and retail space across Dublin that currently produces a gross income of €7.13m per annum. The apartments
are split across seven blocks which are available either collectively or in individual lots. At the guide price of €116m this
implies a yield of 6.2%.
In the retail sector, the Harvest Portfolio, consisting of five provincial shopping centres in Dungarvan, Thurles, Mullingar,
Navan and Cashel, is being sold on the instructions of NAMA. It produces a combined passing rent of €4.8m, implying an
initial yield of over 9% based on the €50m+ guide price.
Finally, Allsop Space is to auction more than 300 commercial and residential properties worth €55m over two days next
month.
In a property market where transactions volumes are still quite thin, this increased activity is welcome. The assets noted
above will no doubt attract interest from all of the usual suspects where Irish real estate deals are concerned. For the
banks, the sales should create a range of lending opportunities.
Philip O’Sullivan │Chief Economist │ +353 1 421 0496 │ [email protected]
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To view the full range of Investec Research & Insights, go to www.investec.ie/research
Wednesday, 19 November 2014
Equities: Irish Banks - Moody's upgrades BKIR's senior debt rating
In a statement released after the market close yesterday, Moody's announced that it has upgraded Bank of Ireland's
(BKIR) senior debt ratings to Ba1 (one notch below investment grade) from Ba3 and deposit ratings to Baa3 from Ba2.
The agency also upgraded its ratings on BKIR's subordinated debt and hybrid instruments by two notches.
Moody's senior credit analyst Mr Suarez Duarte said that "the upgrade reflects our expectations that BKIR will continue to
improve its profitability and strengthen its capital position on the back of the lower funding cost and the declining cost of
credit supported by the favourable operating environment in Ireland and the UK". On the group's end markets, the agency
said that improving conditions will facilitate lower impairments, reduced funding costs, enhanced collateral values and
further provision write-backs.
Moody's also noted that BKIR's liquidity and funding metrics continue to improve, along with the positive outcome to the
Comprehensive Assessment, which showed that BKIR "has adequate provisioning levels and would remain sufficiently
capitalised to withstand an adverse economic shock under the current transitional capital rules".
In terms of factors that could prompt a further upgrade, Moody's identified a series of catalysts, namely: a significant
reduction in the stock of problem loans; positive net lending; further improvements in profitability and efficiency; additional
improvements in BKIR's fully loaded capital and leverage metrics; and the group's ability to maintain a sound liquidity
profile.
On the factors that could see the ratings revised down, Moody's cited a weakening in the Irish economy; a deterioration in
the group's profitability metrics; a material deterioration in BKIR's liquidity profile or funding position; and a reduction in
expectations of systemic support.
Overall, while this is a welcome development, it is not a particular surprise given Moody's warmer sentiment towards
Ireland in general (Moody's has raised its rating on the Sovereign by a cumulative three notches in the year to date) while
BKIR's progress across a range of metrics - funding, profitability, asset quality, capital - since the start of the year has
been very impressive. Our core narrative around both Irish Sovereign and bank issuance for quite some time has been
that improving fundamentals allied to self-help measures and favourable technical factors (including the scope for positive
ratings actions) would combine to push down on yields. This ratings move is a further reminder of the improving path that
Irish bonds are on and we see a further (deserved) upgrade of BKIR's senior debt to investment grade as being likely to
come through in the not too distant future.
Philip O’Sullivan │Chief Economist │ +353 1 421 0496 │ [email protected]
Equities: C&C – UK legislation could alter Pub industry’s distribution model
Last night the UK parliament voted in favour of an amendment to the Small Business, Enterprise & Employment Bill which
if enacted would let landlords buy their beer on the open market and force pub firms to offer “market rent only” options for
their tenants. In a surprise loss for the government, MPs voted 284 to 269 to support the amendment. The bill will now
need to pass the House of Lords. The pubs industry and individual companies have reacted with disappointment to this
amendment with the British Beer & Pub Association saying it would “hugely damage investment” and could lead to
“significant pub closures”. This morning Enterprise Inns has said that the amendment threatens to have serious
unintended consequences. It added that it will continue to assess all options to safeguard the interests of both its
publicans and shareholders and awaits the Government’s response to this unwelcome development.
Gerard Moore │Head of Research │ +353 1 421 0463 │ [email protected]
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Economics +353 1 421 0496 Currency +353 1 421 0091 Equities +353 1 421 0463 www.investec.ie [email protected]
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Wednesday, 19 November 2014
Equities: IFG – IMS reflects a year of transition
IFG has today provided an IMS detailing its performance from January to October 2014. The statement reflects the
transformation that the group has undergone in recent times, as it has repositioned around its two core businesses, James
Hay and Saunderson House.
James Hay has seen continued growth in SIPPs, adding 5,247 in the first 10 months of 2014 (FY 2013: 5,071). However,
the pressure on margins and interest income (which is expected to fall by £1m in H2 from H1) highlighted in the interim
results in August has continued, which together with investment in technology and staff has reduced the unit’s forecasted
profitability for 2014. Total AUA have improved to “more than £16bn” from £15.3bn at end-2013, while current year attrition
remains at historically low levels (less than 6% annualised).
Saunderson House has delivered “over 20% growth in revenues with margins being maintained”. Client wins in the year to
date total 222, which is 77% above year-earlier levels (the FY 2013 total was 154) and which combined with “de-minimus”
attrition levels brings the total client base to 1,600.
On disposals, the group expects to complete the £10.8m sale of its Irish pension and advisory business before the year
end, subject to regulatory approval. In recent months IFG completed the sale of IFG FS and Siddalls France for a
combined consideration of up to £8.9m. Discussions continue on a sale of ARB, its Irish general insurance business,
“though a transaction is not imminent”.
Having slimmed down to its core operations, IFG says that it has “a strong and liquid balance sheet to support our growth
ambitions”. Management will “selectively consider acquisitions, including strategic arrangements such as the Capita deal,
to further accelerate growth”.
On the outlook, IFG guides that its 2014 adjusted pre-tax operating profit “will be marginally below 2013 on a re-presented
basis, though after-tax earnings will be impacted by a materially higher effective tax rate, linked to the disposals of
businesses”. Further out, management expects “material growth in group profitability” in 2015. The group will report its
future results in three segments, namely James Hay, Saunderson House and Group/Other. While IFG says that it “will
continue to review our corporate structure to drive performance and maximise returns to shareholders, we do not expect in
the short term to move our group headquarters from Ireland or to change our current market listing arrangements”. The
group will pay an interim dividend of 1.65c per share on December 18 and has committed to review its dividend policy in
early 2015.
Overall, today’s statement reflects the transformation that IFG has undergone over the past year, as it has exited non-core
areas to refocus on its main customer offering. While top-line growth in its continuing businesses is impressive, the bottom
line has lagged this year due to a combination of the investment to support a higher volume of activity and pressure on
margins and interest income in James Hay. “Meaningful growth “in profitability is expected in 2015, helped by this year’s
client wins and “a focus on improved cost efficiency”. Net cash, which is expected to reach £25m by year-end following the
sale of the Irish pensions and advisory business, provides the group with the resources to pursue a range of strategic
options.
Philip O’Sullivan │Chief Economist │ +353 1 421 0496 │ [email protected]
Equities: Datalex – Reports positive IMS; FY guidance reiterated
Datalex has this morning released a positive IMS for the 4 months ended 31 October 2014, announcing a new customer
win, technology partnership in Asia Pacific and reaffirming FY14E guidance of adjusted EBITDA growth of 18%-20%. The
company reports that during the period transaction revenue grew 15% yoy, reflecting the full impact of customers who
went live during 2013 in addition to the go live in Q314 of Brussels Airlines.
Regarding business development, Datalex continues to achieve momentum and has this morning announced a new
customer win of a leading European carrier, the contracts of which are expected to be finalised before year end. In
addition, Datalex has indicated that it is in advanced negotiations with a number of other prospective customers and
5
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Wednesday, 19 November 2014
anticipates two further customer signings in the next quarter. These signings will go live in H215 and will deliver
transaction revenue growth in 2016.
As part of its strategy of entering new channels, the group has also announced a technology partnership with Abacus
International in Singapore, which will use the Datalex Travel Distribution Platform to service travel agency customers.
Abacus provides IT products and services to over 44,000 travel agency locations across Asia Pacific. The benefits of the
deal are expected to flow through in 2016-2017.
Overall this is a positive update, with a new customer win and entry into a new business channel a further endorsement of
the Datalex proposition. Management have reiterated FY14E guidance of 18-20% adjusted EBITDA growth and further
growth in cash reserves. After a strong YTD performance (+26%) Datalex currently trades on a FY15 consensus P/E of
29x.
Conor MacCarrick, CFA │Research Analyst │ +353 1 421 0464 │ [email protected]
Equities: INM – IMS shows YTD trading trends broadly unchanged
Independent News & Media has this morning released an IMS for the year to 14 November. Over the period total group
revenue declined by 2.2% yoy (vs. -2.0% in H114) while underlying total advertising revenues in print and online (adjusting
for the impact of the closure of a free-sheet business in Northern Ireland) increased by 0.4% yoy. Circulation revenue
(33% FY13 revenue) declined by 2.7% yoy (vs. -2.4% H114). In terms of print advertising (23% FY13 revenue) underlying
revenues declined by 2.6% yoy (vs. -2.7% in H114), with the slowing decline attributed to strong YTD growth in Property,
Recruitment and Inserts. The group also indicated that advertising conditions have improved in recent weeks compared to
the Summer months. Online revenues (3% FY13 revenue) have grown 33.1% YTD (vs. 30% H114) primarily due to strong
growth in digital publishing operations and NI classifieds. Overall the group indicated that YTD it has delivered a marginal
increase in profitability vs. H114 as a result of cost savings more than offsetting YTD revenue reductions and investment
in the digital space.
Conor MacCarrick, CFA │Research Analyst │ +353 1 421 0464 │ [email protected]
6
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Economics +353 1 421 0496 Currency +353 1 421 0091 Equities +353 1 421 0463 www.investec.ie [email protected]
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Wednesday, 19 November 2014
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