Davy Morning Equity Briefing
Apr 25, 2024
Irish banks
Q1 previews and model updates
The investment thesis on Irish banks remains unchanged – strong capital starting positions and returns above company medium- term targets will support above sector distributions. The focus for Q1 updates will be more operational in nature – activity in the deposit and mortgage market and commentary on net interest income guidance, with interest rates remaining higher than in company guidance. Although valuations have re-rated from early March lows, we continue to see upside and retain our ‘Outperform’ ratings across all three banks.
Travis Perkins plc
No new developments of note
A very concise update from Travis Perkins has indicated that like-for-like revenues fell 3.7% year-on-year in Q1. It is no surprise that this confirms that trading conditions remain difficult. As we would have anticipated, there is no news yet in relation to a potential exit from Toolstation France and a new group CEO. Looking further ahead, with a possible exit from Europe, the arrival of a new CEO, and the benefits from a cyclical upturn in activity levels, there is the unquestionable potential for Travis Perkins to deliver a much-improved performance.
Holcim
Q1 6% ahead; guidance reiterated
In the seasonally less important Q1, Holcim achieved a 6% beat relative to consensus on recurring EBIT. That the full-year guide – especially organic revenue growth of >4% and over-proportional recurring EBIT growth – has been reiterated is also positive and implies an acceleration in organic revenue growth from here.
Ibstock plc
Conditions remain challenging but lead indicators provide encouragement
Ibstock’s trading update is uneventful, which is a satisfactory outcome in the current circumstances. Even though Q1 volumes were below its expectations, EBITDA was in line and the group’s full year expectations are unchanged. Accordingly, we envisage no changes of note to full year estimates. The stock does not look that appealing on near-term forecasts but actually is potentially very cheap on the combination of a recovery in earnings along with the impact of Ibstock’s growth investments coming through. For now, sentiment understandably is focused on the short term, but this will not necessarily remain the case indefinitely.
Persimmon plc
Guidance reiterated as Q1 meets expectations
Sales rates have shown a seasonal uptick for Persimmon since the full year results, although sales rate in Q1 are still only modestly higher than last year. Volume and margin guidance for FY24 has been reiterated, and we do not expect forecast changes following the update.
Dalata Hotel Group
Trading in line with prior trends; remains optimistic for the remainder of the year
Dalata has issued a trading update alongside its AGM. Group like-for-like (LFL) RevPAR was down 4% year-on-year (yoy) for the January to April period, broadly in line with our expectations and trends from the early part of the year. It notes that performance in the UK has been good and that it continues to see healthy levels of corporate demand across all regions. This has been offset by softer trading in Dublin. It reiterates that it is optimistic in its outlook for the remainder of the year. For FY24, we model broadly flat LFL RevPAR in Dublin. We expect growth to improve as we move into the seasonally more important part of the year due to the increase in scheduled flights this summer, a busy events calendar and easier comparatives from September onwards. We do not envisage any change to our forecasts on the back of this update. We retain Dalata as a top pick and see substantial share price upside as a result of: (i) strong free cash flow characteristics (FCF yield 14%); (ii) a combination of both organic and inorganic growth; (iii) its lowly geared balance sheet (bank ND/EBITDA post rent 0.9x); (iv) a modern, well-invested estate (value €1.7bn); (v) an attractive valuation (c.10x P/E); and (vi) proven operational excellence.
Symrise
Exceptional Q1 volume delivery
Symrise’s Q1 update confirms a strong start to FY24, underpinned by exceptional volume growth across both divisions. Underlying pricing was uncharacteristically negative in the quarter, which will be a watchpoint. The CEO commentary strikes an upbeat tone on trading for the months ahead. We envisage modest upside to our full-year forecasts.
Wizz Air Holdings
Post-close trading update
Wizz Air expects to report net income in the range of €350- €370m for the full year, in line with guidance (previously €350-400m, Davy €348m). Wizz will report FY results on May 23rd.
Norwegian Air
Making progress
Norwegian delivered significant losses for the usual Q1, with EBIT excluding other losses/(gains) of NOK637m (consensus -NOK528m, -NOK886m last year), impacted by negative FX revaluation effects. However, full year guidance has been maintained (EBIT NOK2.5-3.2bn) with summer season (May-August) capacity up 15% and currently forecasting low-single-digit yield growth, the acquisition of domestic business Widerøe and the opening of new bases at Riga and Palma de Mallorca.
UPM
Q1 2024 27% consensus EBIT beat
UPM’s Q1 2024 comparable EBIT of €333m represents a 27% consensus beat due to higher-than-expected profit in its (1) Fibre (pulp making) and (2) Energy divisions. Reassuringly, post recent delays, UPM’s new Uruguay pulp mill ramp-up appears on track. Expect c.5% upgrades to UPM’s €1.26bn 2024E comparable EBIT consensus ahead of the 11:15 (12:15 CET) earnings call.
Stora Enso
Expect relief rally post Q1 beat
Stora Enso’s Q1 2024 operational EBIT of €156m represents a 75% Vara consensus beat, principally due to Packaging Materials’ return to profit (improving demand/pricing). Additionally, Stora Enso is raising its cost saving target from €80m to €120m. Despite the conservatively unchanged 2024E outlook, expect 10%+ upgrades to Stora Enso €544m 2024E operational EBIT consensus (source: Vara) and a positive relief rally ahead of the 09:00 (10:00 CET) earnings call.
Greencoat UK Wind
Robust Q1 performance
Greencoat UK Wind’s (UKW) Q1 performance is along expected lines. Net asset value (NAV) fell 2.5% in the period, reflecting the ‘marking-to-market’ of Q1 forward power curve weakness. Its balance sheet is little changed since the end of last year (gearing 39%) and the 2.5p/share proposed quarterly dividend is consistent with its 2024 10p/share target. Its performance remains robust – NAV remains within 5% of December 2022 peak levels despite the material reset in key macro-economic assumptions in the subsequent period (including forward looking power price and inflation assumptions, and a higher portfolio discount rate). With NAV on an increasingly stronger footing, the stock’s valuation looks attractive – trading at an 11% discount to March 2024 NAV, its 11% levered portfolio discount rate equates to a c.7% equity risk premium over the UK ten-year gilt.
