Davy Morning Equity Briefing

Jun 15, 2021

Market Comment

Construction PMI at four-year high

The re-opening of a large portion of the construction industry in May has driven the PMI to a four-year high. Strong demand has underpinned the confidence of businesses in the sector, which can be seen in record new orders. However, this strength has also led to an all-time high in input cost inflation.

Bellway plc

Solid sales rates in H2 so far; volume guidance reiterated

Bellway has seen good sales rates since February despite the curtailment of Help to Buy from April. The company has reiterated volume guidance for the year, and average selling price (ASP) is likely to be slightly higher than previously thought. Build cost inflation is continuing to accelerate, but this is being more than compensated by house price inflation for now.

Lufthansa

Announces medium-term targets and prepares for capital increase

Lufthansa has announced medium-term margin and return targets (broadly in line with our forecasts out to 2024). Having mandated banks for a potential capital increase, it also outlined near-term booking levels. In its restructuring programme, costs are expected to decline across the group’s airlines by low- to mid-single-digit reduction of CASK (excl. fuel) by 2024 (compared to 2019 levels). It has also outlined conceptually its strategy to capture market opportunities (Eurowings is seen as driver of recovery and to achieve profitability levels in line with the overall group), enhancing customer centricity and accelerating digitalization, underlining its commitment to sustainability and optimizing ways of working (including the process of evaluating options for the partial divestiture of Lufthansa Technik).

Intertek Group plc

De-rated; forecasts updated for deal but still not enough upside

We have updated our Intertek forecasts following the SAI acquisition and four-month trading statements in May. Overall, there is little change to underlying assumptions, while the deal is unsurprisingly accretive in its first full year. The size of the deal, however, suggests further significant acquisitions are unlikely in the short term.

Serco Group plc

Forecasts upgraded – but more to go for

In line with our comments yesterday morning with regard to the company’s statement on 2021E full year guidance and the contract wins with the DIO, we have formally upgraded our forecasts for this year and for the medium term. We continue to see Serco as well-placed, evidenced by its strong contract momentum over recent months, while its cashflow remains underappreciated.