Davy Morning Equity Briefing
Feb 24, 2021
Powell overwhelmingly dovish in Senate testimony
Jerome Powell was overwhelmingly dovish yesterday (February 23rd), indicating that the Fed will be slow to tighten policy despite a more positive economic outlook and will tolerate inflation above the 2% target. He also downplayed fears President Joe Biden’s $1.9trn stimulus will fuel price pressures. The problem is that investors won’t be able to gauge whether the Fed’s commitments are credible until the US economy bounces back. So, the classic time inconsistency problem means that US Treasury yields will likely resume their upward path as CPI inflation picks up and vaccines are rolled out.
FY 2020 preview
AIB’s strategic intent was outlined in late 2020, setting out its medium-term approach to 2023 and an 8% return target. We expect further details on deliverables during 2021 and how the Ulster Bank portfolio acquisition might incrementally support its returns strategy to be in focus. Given ongoing restrictions, firm guidance may not be possible at this point – hence trends on new business, activity levels and asset quality will be important.
FY 2020 preview
The 2020 loss is not reflective of the progress achieved by PTSB through the capital accretive disposal of the non-core buy-to-let portfolio while also building its mortgage market share through 2020. The successful ongoing rehabilitation of the balance sheet enables PTSB to pursue the transformational opportunity arising from the Ulster Bank Ireland exit to bring scale and develop it as the clear third pillar of the Irish banking system.
FY 2020 preview
A FY 2020 loss is well flagged, but Bank of Ireland (BOI) results will demonstrate good ongoing progress on transformation and costs – with capital strength against the significant build in provisions also notable. Firm guidance may be problematic at present, but we expect updates on operating costs and the UK business. Therefore, trends on new lending, general activity levels and asset quality will be important, with a broader update expected later in 2021 to set out the bank’s medium-term strategy.
Strong FY results to highlight CRH’s rude health
We expect a robust update when CRH reports full year results on March 4th. Despite the impact of the pandemic, organic profits will likely have grown in 2020 with debt metrics reduced to multi-year lows. That sets CRH up strongly for 2021 with significant firepower available for accretive acquisitions and/or increased shareholder returns. Outlook comments are likely to be guarded given limited visibility and the ongoing impact of the pandemic. However, we believe CRH will see it out better than most given its financial muscle and exposure to infrastructure end-markets. We reiterate our ‘Outperform’ stock rating and €42 price target.
EPS ahead as cash generation impresses
The key takeaways from Glanbia’s FY20 result include:(i) improved trajectory for Glanbia Performance Nutrition (GPN) through H2; (ii) impressive cash generation with year-end net debt/EBITDA at 1.7x; and (iii) guidance of 6-12% constant currency (cc) EPS growth, led by EBITA growth for GPN and Glanbia Nutritional (GN). Overall, the FY20 result bookends a challenging year for the GPN business — we expect the breadth of actions taken to rebuild revenue and margin within GPN to accrue through FY21 and FY22. We envisage no material change to forecasts as FX headwinds temper underling constant currency progress. We believe the equity is attractively priced on a free-cash and earnings basis.