Davy Morning Equity Briefing

Nov 25, 2022

Market Comment

Financial Stability Review – no surprises

The increase in the countercyclical capital buffer (CCyB) to 1ppt is in line with the Central Bank of Ireland’s (CBI) guidance, and it remains its view that a 1.5ppt rate is the neutral Irish rate. Consolidation in the domestic market may impact the other significantly important institutions buffer (O-SII) – it will be at least another year (and perhaps two) before we understand how this will play out – which is unfortunate given that clarity on capital buffers remains an important facet of investment cases.

AIB Group

Medium-term targets trajectory likely well understood

AIB is well set in the coming years to deliver higher returns and profitability, underpinned by a positive backdrop from higher rates and consolidation. In our view, the earnings upsides are well understood, and it is unlikely that a more definitive message on distributions will be delivered at this juncture. The stock has provided a total return of 42.3% year-to-date (ytd), well ahead of the Eurostoxx bank index. While we remain ‘Outperform’ on a 12-month basis, we do not expect the update to be a catalyst.

Breedon Group

Solid update with positive incrementals

Breedon’s trading update is not vastly different from expectations (pricing remains key driver, 2022 expectations reaffirmed), but the incremental news is positive. Notably, infrastructure and industrial end-markets “remain resilient”, while the awarding of a number of framework contracts (especially the National Highways Framework) provides more volume certainty into 2023.

ASOS plc

What’s in the annual report? keep fishin’…

ASOS (ASC) published the 2022 annual report and accounts on November 10th. The new CEO, Ramos, took the opportunity to explain his vision of selling ‘fresh fish’. All the messaging was bang on — a focus on innovation, listening to customers and efficiency — much needed following Beighton’s departure, slowing growth and shrinking margins. Time will tell if the customers like the new look ASC sashimi or if it all seems a tad too fishy.


Guidance update

Following some unexpected issues with the electricity grid and associated power outages, Kenmare now expects 2022 ilmenite production to be 2.7% below our forecast. However, shipments are unaffected. Costs will be slightly higher than forecast due to fuel costs, but pricing strength is currently expected to offset this.