Davy Morning Equity Briefing
May 02, 2024
AIB Group
Good quarter; conservatively retaining guidance
AIB Group (AIBG) has reported a good Q1, with momentum in customer lending and capital, which continues to be materially in excess of its management target. Notwithstanding the good start to 2024, FY 2024 guidance remains unchanged at this juncture. This is a conservative approach in our view and we do not expect to change our forecasts, particularly net interest income. The strong capital position may turn focus as to whether an interim dividend, or buyback, may be a feature in H2 2024.
Grafton Group
Challenging start to 2024 but still well placed
Trading conditions remain unfavourable and this is evident in a continuing squeeze in underlying revenues. We are likely to trim our current year trading profit forecast of £177m towards the consensus estimate of just over £173m. Despite this, Grafton is well placed to benefit when its end-markets inevitably recover. In addition, Grafton as ever retains a very healthy balance sheet and we believe it is likely to deploy some of its cash on external opportunities in the coming year or so.
Glenveagh Properties
Robust sales through spring bolster the equity story
Strong growth in the order book since the FY23 results underpins current year guidance (17c EPS), which continues to have upside risk in our view. With c.15% return on equity likely this year alongside strong NAV growth, Glenveagh Properties is significantly undervalued and we reiterate our ‘Outperform’ rating. The company remains our top pick in the homebuilder stock universe.
DSM-Firmenich
On track for 2024
Dsm-firmenich has delivered a solid start to FY24, with Q1 EBITDA in line with expectations. Group performance was supported by strong fragrance demand within Perfumery & Beauty (P&B), and Taste, Texture & Health (TTH) seeing improved end-market momentum with destocking normalising. Animal Nutrition was weaker than expected. FY24 EBITDA guidance is unchanged, with management remaining cautious as to the robustness of market recovery trends. As such, we envisage limited changes to our forecasts.
Kerry Group
Good start to FY24, further €300m buyback announced
Kerry is off to a good start for FY24 with Taste & Nutrition (T&N) volume growth of 3.1% and margin expansion of 140bps. The group has updated its EPS guidance to reflect a new €300m buyback programme. We envisage no material change to underlying forecasts. The business remains well positioned and is executing well in a tricky demand environment.
Smurfit Kappa Group
Positive Q124; Westrock merger on track
Smurfit Kappa Group (SKG) reported 3% Q124 European box volume growth but, like peers, due to lower containerboard and box prices, SKG’s Q124 EBITDA fell 16% year-on-year (yoy) to €487m. Positively, following successful Q124 containerboard hikes, we expect minimal changes to SKG €1.99bn 2024E EBITDA consensus. SKG’s merger with Westrock is on track for early July 2024 completion. Westrock will release Q2 FY24E results later today. In H2 2024, we expect Smurfit Westrock S&P 500 index inclusion, with improving box demand and rising box prices supporting potential Smurfit Westrock synergy ‘beat & raise’. SKG will host a call at 08:00 — access at SKG Q1 update call.
Huhtamaki
Price and FX headwinds but continued margin expansion
Huhtamaki reported a 4% fall in Q124 revenues (-2% organic, -2% FX) but delivered 7% adjusted EBIT growth to €98.8m (benefit of lower raw materials and restructuring). In 2024E, Huhtamaki is benefiting from lower raw material costs but sharing some of this gain with customers, impacting organic revenue growth. With a FX headwind (Turkey and Egypt), our €414.5m 2024E adjusted EBIT sits 1% below the street; however, we are confident of a return to comparable sales growth by end-2024E and reaffirm our ‘Outperform’ view.
TRIG plc
Q1 performance as expected
TRIG’s Q1 2024 NAV performance is broadly as expected. The quarterly NAV bridge (-2.7p to 125.0p/share since the end of 2023) is of a similar shape to others in the sector, reflecting a decrease in short-term power prices and below budget generation in the period. Evidence of its disposal programme, selling assets at a premium to NAV with proceeds used to reduce debt, is apparent and consistent with its stated capital allocation strategy. At 99p, the stock is trading on 0.79x P/NAV and a dividend yield of 7.5%. Its 8.1% levered discount rate equates to a net equity risk premium of 3.5%, or 5.6% adjusting for the share price discount to NAV – both below the sector average of 4% and 6.6% respectively.
Hostelworld
AGM statement – reiteration of prior guidance
Hostelworld issued an AGM statement this morning, commenting on current trading and outlook as well as maintaining FY24 guidance (previously issued March 21st). Revenue is still expected to grow by high single digits this year, while marketing costs remain at the low end of the guidance range. For the remainder of 2024, the ongoing implementation of its ‘social strategy’ will be key to further reducing costs and increasing operating leverage. If sustained at current levels, strong adjusted EBITDA margins and adjusted free cash flow conversion will leave the company in a strong position to de-lever its balance sheet.
