Davy Morning Equity Briefing
Apr 24 2019
Brexit back on the agenda
Equity markets rose on Tuesday on US earnings, but news that Theresa May will bring a vote on the Brexit withdrawal bill pushed sterling back below $1.30. Meanwhile, the Markit Household Finance Survey bounced back in April to a three-month high, perhaps the first sign that sentiment indicators may be granted a temporary reprieve with Article 50 extended until October 31st.
Strong start supports further share buyback
CRH has issued a positive trading update (Q1 like-for-like (LFL) sales +7%), driven by improved momentum in European cement pricing and solid growth in the Americas. Given the company’s superior record of cash conversion, this is likely to strengthen its financial muscle and therefore capital allocation options. Presumably, this and the prospects of on-going improvements in returns are driving management’s decision to continue with its share buyback programme (€350m). This is despite the 31% increase in the share price over the past 12 months. At just over 8x our (conservative?) 2019 EBITDA forecast, the valuation continues to look attractive in both absolute and relative terms.
Strong Nutritional Solutions performance offset by negative branded growth; FY guidance reiterated
Glanbia’s Q1 update reflects a strong performance in Nutritional Solutions (NS), offset by a double-digit decline in Global Performance Nutrition (GPN) – its first quarterly fall since Q1 2017. The decline reflects the strong Q4 sell-in and supply chain configurations in certain non-US markets. Organic growth in GPN for 2019 is expected to be positive, driven by both volume and price. Glanbia has reiterated guidance for 5-8% constant currency growth in adjusted EPS for 2019. We expect profit delivery to be H2-weighted (GPN-related) and envisage no material changes to our FY 2019E EPS forecast.
Progress reported for Uganda operations
Local press reports from Uganda indicate that the Total-led group has been granted a certificate by the National Environment Management Authority (NEMA) to proceed with the Tilenga project in the Lake Albert region. The certificate is a prerequisite for official permission to proceed and is also required before a final investment decision (FID) can take place. The news is positive for the development as a whole and Tullow in particular.
Learning through play
This year’s drilling activity is structured to glean as much as possible from the various oil and gas targets identified in the Beetaloo Basin, Northern Australia. This will allow the most economically optimal play to be identified in the first instance and appraised in the 2020 programme. This makes sense for all concerned and is the best way to achieve value realisation for shareholders.