Davy Morning Equity Briefing

Oct 19 2018

Market Comment

An unprecedented budget deviation

Italian yields have pushed through 3.7% this morning after the European Commission criticised the government’s budget plans. Today’s UK borrowing figures will highlight better-than-expected borrowing figures – increasing the political pressure on Chancellor Philip Hammond for a giveaway budget on October 29th.

Irish banks

Finance Ireland acquires Pepper Money’s mortgage portfolio and origination business

Recent newsflow regarding the mortgage market has concentrated on entrants to the market; however, as one confirms its entry, another exits. The acquisition of Pepper Money’s mortgage business by Finance Ireland presents it with a ready-made route to enter the market. Early next year, it plans to broaden its product offering into mainstream lending – beyond the more specialist nature of Pepper Money’s existing range – but does not expect its proposition to be a price leader. Overall, the transaction should result in a net reduction in capacity – dampening fears of a ramp-up in competition in the market.


China powers ahead - India and Nigeria face cost battle

Updates from LafargeHolcim’s (LHN) quoted subsidiaries highlight contrasting fortunes across the group. Nothing is improving like the Chinese cement business, where Q3 profits will likely increase threefold. Tighter supply and price hikes are driving a sharp rebound in margins. Meanwhile, India has seen strong volume growth, albeit margins contracting due to sustained cost pressure. An improved result from Lafarge Africa suggests that the group is slowly getting to grips with losses in its South African unit. LHN reports Q3 results on Friday October 26th.


Solid September RevPAR in Ireland while UK softens

September delivered solid RevPAR growth in Dublin, +4.1%, driven again by strength in average daily rate (ADR). London and the UK overall softened in September following strong RevPAR in July and August. As we now enter the shoulder months of summer, ADR will remain central to growth given occupancy comps for Dalata, particularly in Dublin. Dalata is now trading on a 2019 EV/EBITDA multiple of 10.3x versus 10.0x for its slower growing peers. For 2019, we forecast Dalata to grow EBITDA 18%, driven largely by the completion of 1,456 new rooms in 2018 (20% room increase). For Whitbread, the softer UK growth should be accounted for in our -1.0% RevPAR forecast.