Davy Research

Davy Morning Equity Briefing


Market Comment

Just 12% of Irish homeowner mortgage loans now in negative equity

New Central Bank data show just 12% of owner-occupier mortgage loans in negative equity in June 2016, down from 15% at the end of 2015. Given rising residential property prices, this proportion has probably fallen below 10%. Also, the data show that just 10% of mortgage loans exceeded the 3.5x loan-to-income (LTI) multiple. So, there was ample room for leverage to increase in H2 2016, while staying within Central Bank rules.


Kingfisher

Difficult start to the year

For Kingfisher, 2017/18 is an important year. The group hopes to unify 20% of its COGS, arguably the first real test of its ONE Kingfisher strategy. This has impacted the business’s performance in the first quarter. The task is made more challenging by what are difficult trading conditions – the group’s French businesses continue to decline (and lag the underlying market), while there is increasing evidence that macro uncertainty in the UK is impacting on DIY demand (B&Q like-for-like (lfl) sales declining in underlying terms). With the stock now trading on circa 16.5x our adjusted EPS estimate (circa 13.5x underlying EPS), there appears little margin for error for the group.


Ibstock plc

Trading update points to encouraging start; outlook in line with expectations

Ibstock has reported an encouraging start to the year with good volume growth and price increases achieved in line with internal expectations. Much like Forterra yesterday, the year has started well and we suspect that the bias to consensus estimates continues to lie to the upside. We believe that the brick industry remains structurally attractive with Ibstock representing the stand-out play on the sector. Ibstock offers the attractive combination of undemanding valuation, positive earnings momentum and a healthy dividend. While the stock has performed well recently, we believe there is further to go.


Frutarom

Strong performance in Flavours

Frutarom delivered Q1 2017 results that were broadly in line with our EBITDA expectations. Its core Flavour activity sustained healthy rates of revenue and profit growth in the period — we note that pro-forma revenue growth for its Flavour activity accelerated to 6.6% from 5.1% in Q4 2016. A lower incidence of non-recurring costs was a welcome feature of the statement. Frutarom continues to execute well and remains on track to achieve its long-term objectives. Its focus on the SME and private-label segments is supportive of growth in the current environment.


Kenmare

Iluka raises its zircon reference price by 13.4%

Iluka has announced that it is increasing its zircon reference price by $130/tonne to $1,100/tonne effective from July 1st. This follows a price increase of $50/tonne effective in mid-February. Kenmare should benefit from the stronger zircon market.


Irish economy

Irish employment growth accelerates to 3.5%

Irish employment grew by 0.9% in Q1 2017 and is now up 3.5% on the year — broad based across construction, industry and services. The unemployment rate was revised up to 6.4% in April as net migration and increasing participation contributed to the fastest rise in the labour force (+1.6%) since 2008.