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Davy Research
Davy Morning Equity Briefing February 21 2014
See the end of this report for important disclosures and analyst certification
Irish CPI inflation 0.2% in January
Stock indices made small gains on Thursday. The Euro
Stoxx 50 was up 0.03% and the S&P 500 up 0.6%.
Investors were encouraged by a rise in the US
manufacturing PMI to 56.7, above expectations. UK
retail sales data for January are released this morning
and are expected to show 5% growth on the year.
Irish CPI inflation was 0.2% in January. Read more
Resources and environment
Ormonde Mining: The last lap on road to Barruecopardo Read more New Report
Property
Hibernia REIT: More colour on first investment Read more
Financials
FBD Holdings: Personal lines insurance rates stall Read more
FBD Holdings: AXA cites price competition in Irish personal motor insurance Read more
Pharma and healthcare
ICON: Full-year results; sequential improvements in revenue and margin look set to continue Read more
Media
Independent News & Media: Circulation volumes continue to decline Read more
Economy
Irish economy: CPI, January: low inflation poor indicator of health of Irish economy Read more
Results and Events
Monday February 24th: bwin.party - EGM - Suite 6, Atlantic Suites, Europort Avenue, Gibraltar - 11.30. Aminex - EGM - Grange White Hall Hotel, 2-5 Montague Street, London WC1B 5BP - 11.00. Associated British Foods - trading statement. Aer Lingus FY results. PostNL FY results. Kingspan Group FY results. Bovis Homes FY results.
Tuesday February 25th: Persimmon FY results. Ladbrokes FY results. Kerry Group FY results. CRH FY results.
Wednesday February 26th: Conroy Gold & Natural Resources - EGM - details to be confirmed. Diageo - ex-dividend - interim dividend rate - 19.7p. Travis Perkins FY results. easyJet - ex-dividend - special dividend rate - 44.1p. easyJet - ex-dividend - final dividend rate - 33.5p. Taylor Wimpey FY results. Holcim FY results. Corbion FY results.
Thursday February 27th: Redrow interim results. Wienerberger FY results. Premier Oil FY results. Barratt Developments interim results.
Friday February 28th: Salzgitter FY results. Mondi FY results. IAG FY results. William Hill FY results.
Monday March 3rd: FBD Holdings FY results. Kuehne & Nagel (chf) FY results.
Tuesday March 4th: Paddy Power FY results. Bank of Ireland FY results.
Wednesday March 5th: Panalpina (chf) FY results. Grafton Group FY results.
Thursday March 6th: Italcementi FY results. DS Smith - interim management statement. Betfair - interim management
2 Davy Research
Davy Morning Equity Briefing February 21 2014
statement. Origin Enterprises interim results.
3 Davy Research
Irish CPI inflation 0.2% in January
DAVY VIEW
Stock indices made small gains on Thursday. The Euro Stoxx 50
was up 0.03% and the S&P 500 up 0.6%. Investors were
encouraged by a rise in the US manufacturing PMI to 56.7,
above expectations. UK retail sales data for January are
released this morning and are expected to show 5% growth on
the year. Irish CPI inflation was 0.2% in January.
Stock indices made small gains on Thursday. The Euro Stoxx 50 was up 0.03% and the
S&P 500 up 0.6%. Investors were encouraged by a rise in the US manufacturing PMI to
56.7, above expectations. Stock index futures suggest that European indices should catch
up this morning, pointing to gains of around 0.3% at the open. US 10-yields gained
close to 6bps through the day, and are currently trading at 2.76%. The dollar fell from
above $1.375 on Wednesday, now at $1.371. In contrast to the US data, European PMIs
for February were slightly disappointing. The composite PMI was 52.7, down from 53.1
in January. The small dip reflected poor numbers from France, with both manufacturing
and services PMIs suggesting that the economy is still in recession at 48.5 and 46.9
respectively. The German PMI data suggest that activity is expanding at a robust pace at
54.7 and 55.4 respectively for manufacturing and services.
UK retail sales data are expected to show volumes down 1% in January, after a hefty
2.6% rise in December, and up 5.0% year-on-year. However, there have been clear
winners and losers within the UK retail sector. Well known supermarket chains like
Morrison, Sainsbury and Tesco have seen their share prices fall in 2014. Aggregate food
sales have been weak, and competition within the sector has been accentuated by
discounters like Aldi and Lidl. In contrast, clothing retailers such as Debenhams, Next and
Marks & Spencer have seen their share prices gain in 2014. So although today’s retail
sales data are likely to show another strong 5% annual growth rate in January, not all
consumer-facing companies have benefitted from improving demand.
Yesterday, Bank of England MPC member Martin Weale said he expects a first rate rise in
the spring of 2015. This is the second occasion the bank’s new ‘forward guidance’ has
been undermined, following last week’s intervention from Chief Economist Spencer Dale
that the interest rate curve, pricing in rate rises in early 2015, was plausible.
Irish CPI inflation data showed prices up just 0.2% on the year. However, the headline
CPI inflation rate has been pushed down by ECB rates and falling energy prices.
Mortgage interest costs were down 10.4% on the year. Goods price inflation was -1.8%,
with food prices down -1.7% and clothing -2.3%. But services prices (excluding
mortgage interest costs) rose by a robust 3% on the year, with education (+4.6%) and
restaurants and hotels (+1.9%) contributing. The overall picture is that weak headline CPI
inflation largely reflects falling import prices, but with domestically generated inflation
slowly emerging.
Conall Mac Coille [email protected] / +353 1 6148770
Economics Team Conall Mac Coille, David McNamara
Market Comment
4 Davy Research
The last lap on road to Barruecopardo
DAVY VIEW
Achieving favourable approval for the environmental plan to
develop the Barruecopardo tungsten project in western Spain
should be the beginning of the last lap for Ormonde. Details of
how the project will be financed still have to be put in place;
however, on most scenarios, the stock looks very good value at
these levels.
Nearly there – official mining permit to be issued soon
A protracted wait for environmental permitting has led to a frustrating period for
Ormonde shareholders. However, this now looks to be over and the official mining
permit for the Barruecopardo tungsten project should be issued in the near future. In
terms of ranking development risk for mining projects, achieving environmental sanction
has probably become one of the major risks in the business. For Ormonde Mining, that
risk has now passed and attention can move to building and commissioning the mine.
Focus on next stage in development will be the structure of the finance package rather than how much, when or how long
We think the risk of development is biased towards how the plan is financed rather than
complexity or delay. This is because the mine is simple both in mining and processing
terms with good confidence in cost estimates and a management that has built mines
previously.
A combination of funding sources is the most likely outcome
The total announced funding cost to develop Barruecopardo is €70m, comprising a
capital cost element of €48.5m with the balance made up of working capital and VAT
(projected at €9m). The appointment of Swedbank Norway as bond consultants points to
one route to meeting this funding requirement. However, this is unlikely to constitute the
full funding package. It seems sensible to also expect a part-sale of the mine (flagged by
management as a possibility) or some element of equity issuance in the plc to play a role.
What the combination between the three elements is likely to be will be resolved in the
coming months.
Strength of project and commodity will protect value
By definition, unless debt is the only source of finance, there will be a level of dilution
involved as either the market or industry investor will look to reflect the risk of
investment before the mine is built and cash flow demonstrated. Even taking this into
account – and we think it is sensible to assume that there will have to be a material
element of non-debt finance – the positive and stable outlook for tungsten pricing and
the expectation that the mine will continue underground at the end of the open pit still
provide a significant degree of value leverage for shareholders.
Pre-funding, we think Ormonde is worth 15.6p per share. Our valuation matrix with
higher tungsten prices and additional developed tonnes shows material upside.
For further detail, see our research report issued this morning.
Ormonde Mining
OUTPERFORM Closing price:7.0c
Job Langbroek [email protected] / +353 1 6148914
Resources Team Job Langbroek, Caren Crowley, Bart Jaworski
Share Price Performance
Financial Data
Ormonde Mining :Financial model and valuation analysis
Resource Sector Review
Ormonde Mining (ORM ID)
5 Davy Research
More colour on first investment
DAVY VIEW
While its portfolio is ultimately likely to be circa 60% weighted
towards the office sector, it so happened that Hibernia REIT’s
first investment was mostly residential-based. This is in its own
right an increasingly attractive end-market. Further analysis of
the assets acquired would suggest that there is good potential
for shareholder valuation creation. Given the product pipeline
and liquidity, it should not be too long before Hibernia REIT
makes its first significant purchase of office assets.
Further detail on initial transaction
In time, Hibernia REIT’s portfolio mix is likely to be around 60% office, 20-25% retail,
with the balance industrial and residential. However, the timing of deal flow is such that
the group’s initial investment was largely residential-based.
Further analysis of the transaction announced earlier this week suggests that Hibernia
REIT should be well placed to deliver shareholder value. As we noted at the time of the
announcement, the main asset, Wyckham Point, is a good play on the recovery in the
Dublin housing market, currently manifest in the dearth of rental properties. Hibernia
REIT has suggested that it may take 14-16 months to fully build the 213 partly completed
units, which has potential net rental income of circa €3.5m per annum and a gross yield
of around 8%. In addition, the average cost per unit (purchase plus build-out) is
estimated at over 10% below its market value.
Moreover, of the other assets acquired, a number are non-core and will be sold. It has
been suggested that Hibernia REIT could recoup over €13m of the initial €70m total cost
(including expenses).
Level of liquidity in market suggests investors will not be waiting too long for first significant office activity
Given the likely level of liquidity emerging, we believe that it will not be too long before
Hibernia REIT makes its first foray into the office market. It still has over €275m of cash to
deploy in a market where there remains considerable opportunity.
Hibernia REIT
Closing price:108c
Flor O'Donoghue florence.o'[email protected] / +353 1
6148741
Ray Crowley [email protected] / +353 1 6149198
Industrials Team Barry Dixon, Robert Gardiner, Flor
O'Donoghue, Colin Sheridan, Ray Crowley
Share Price Performance
Financial Data
Hibernia REIT :Financial model and valuation analysis
Agribusiness Sector Review
Hibernia REIT (HBRN ID)
6 Davy Research
Personal lines insurance rates stall
DAVY VIEW
Personal lines rates were flat in January although in the case of
motor insurance, the year-on-year trajectory improved from a
decline of 9.2% at end-2013 to a modest advance of 0.2% at
end-January. While home insurance rates remained down 2.4%
year-on-year at end-January, in line with the end-December
trend, the recent severe weather should provide the impetus
for rate rises from here.
Insurance Ireland puts weather cost to early January at €46m
On February 11th, Insurance Ireland announced that the estimated cost of claims for its
members (circa 95% of the market) relating to storm damage and flooding in December
and early January was approximately €46m. As the weather has been unrelenting since
then, the final bill will undoubtedly be higher.
On January 3rd, FBD reduced its 2013 operating EPS guidance range from 145-155c to
135-140c (Davy: 139.3c) to reflect its estimate of storm damage (€4-5m net of
reinsurance) up to the end of the year, although a better-than-expected investment
performance limited the impact on total EPS and NAV.
In our recent report, ‘FBD: Consistent Outperformer’, issued February 5th, we highlighted
how reinsurance has historically kept FBD’s share of the cost of major weather events
below its ‘natural’ market share (of circa 12%). On this occasion, high winds have been
the key issue for FBD as opposed to flooding (FBD uses geocoding to assess flood risk)
and the insurer will presumably update investors on the issue when it reports FY 2013
results on March 3rd. An industry estimate for the cost since early January is not yet
available.
FBD Holdings
OUTPERFORM Closing price:1840c
Emer Lang [email protected] / +353 1 6148925
Financials Team Emer Lang
Share Price Performance
Key financials (€m)
Dec13E Dec14F Dec15F
Net Written Prems 302.5 311.6 321.0
Underwriting
Result 20.7 22.5 24.2
Long-term Invst Ret
28.0 28.5 28.5
Other Activities 5.4 6.0 6.4
S/term Invst
Ret/Oth -1.2 -8.5 -7.0
Profit before Tax 52.5 48.2 51.9
Attrib. Profit
(Basic) 44.5 40.9 44.0
EPS Basic 132.4 119.9 129.2
Operating EPS 139.3 145.2 150.9
Dividend 48.8 53.7 60.4
NBV 793.6 853.4 922.2
Valuation
P/E 13.2 12.7 12.2
Mkt Cap / Op
Profits 11.5 10.9 10.5
Mkt Cap / Net
Prem 2.1 2.0 1.9
Dividend Yield (%) 2.7 2.9 3.3
Price / Book 2.3 2.2 2.0
Financial Data
FBD Holdings :Financial model and valuation analysis
General insurance Sector Review
FBD Holdings (FBD ID)
7 Davy Research
AXA cites price competition in Irish personal motor insurance
DAVY VIEW
Axa’s 2013 results provide limited insight into trends in the Irish
insurance market as it groups UK and Ireland activities.
Nonetheless, it cites increased price competition in Ireland as
one factor behind the 5% decline in its UK and Irish personal
motor revenues in 2013.
Axa is the largest player in Irish motor
Axa’s gross revenues in the UK and Ireland fell by 6%, or 2% on a comparable basis.
Personal lines (49% of gross revenues) were down 10% at €1,888m. Within this, motor
was down 5% to €530m due to market tariff softening within the UK and increased
price competition in Ireland.
Axa notes that the Central Bank’s 2012 insurance statistics ranked it as the largest motor
player in Ireland (motor premium income of €225m). It was followed by RSA (€184m)
and FBD (€142m).
Its UK and Irish non-motor revenues fell by 12% to €1,358m, mainly in household, driven
by portfolio pruning through tariff increases and exiting of unprofitable schemes.
UK and Irish commercial lines (51% of P&C gross revenues) increased by 9%, driven by
tariff increases and increased retention in the fleet business.
Overall, Axa’s combined ratio in its UK and Ireland division improved from 100.7% in
2012 to 98.5% in 2013, driven by an improved loss ratio. Axa reports that its current
accident year loss ratio improved from 69.4% to 67.2% in 2013 while its all accident
year loss ratio also improved, from 70.5% to 67.9%.
FBD Holdings
OUTPERFORM Closing price:1840c
Emer Lang [email protected] / +353 1 6148925
Financials Team Emer Lang
Share Price Performance
Key financials (€m)
Dec13E Dec14F Dec15F
Net Written Prems 302.5 311.6 321.0
Underwriting
Result 20.7 22.5 24.2
Long-term Invst Ret
28.0 28.5 28.5
Other Activities 5.4 6.0 6.4
S/term Invst
Ret/Oth -1.2 -8.5 -7.0
Profit before Tax 52.5 48.2 51.9
Attrib. Profit
(Basic) 44.5 40.9 44.0
EPS Basic 132.4 119.9 129.2
Operating EPS 139.3 145.2 150.9
Dividend 48.8 53.7 60.4
NBV 793.6 853.4 922.2
Valuation
P/E 13.2 12.7 12.2
Mkt Cap / Op
Profits 11.5 10.9 10.5
Mkt Cap / Net
Prem 2.1 2.0 1.9
Dividend Yield (%) 2.7 2.9 3.3
Price / Book 2.3 2.2 2.0
Financial Data
FBD Holdings :Financial model and valuation analysis
General insurance Sector Review
FBD Holdings (FBD ID)
8 Davy Research
Full-year results; sequential improvements in revenue and margin look set to continue
DAVY VIEW
ICON has delivered another quarter of sequential improvement.
This time the beat was mostly driven by increased operational
leverage. 2014 company guidance would imply that this was
not a once-off. We are upgrading our 2014 EPS forecast by c.9%
to $2.10.
Strong top-line and margin performance
ICON’s FY 2013 revenues increased +20% year-on-year (yoy) to $1,336m (Davy:
$1,339m) whilst operating income increased +77% to $130.2m (Davy: $125.5m).
Adjusted EPS came in at $1.77, a yoy increase of 77% (Davy: $1.69, consensus: $1.70).
ICON had a net book-to-bill ratio of 1.29x in Q4 and a FY book to bill of 1.23x.
ICON exited 2013 with a healthy cash position of $320m versus $190m a year earlier.
This was mainly due to an improved working capital performance. On the conference
call, when asked about its capital allocation strategy, management said it would continue
to pursue bolt-on acquisitions in the CRO space.
Full-year guidance for 2014 implies further operational leverage
ICON issued 2014 guidance of 6-10% revenue growth (Davy:+8%) and stronger EPS
growth of 16-24% to a range of $2.05-2.20. We are upgrading our EPS forecast for FY
2014 to $2.10; the upgrade is driven mainly by improved operating margins.
The stock continues to trade near all-time highs, as is the case with several of its CRO
peers.
ICON
NEUTRAL Closing price:$48.70
Declan Morrissey [email protected] / +353 1 6149192
Food, Beverage and Pharmaceuticals Team John O'Reilly, Jack Gorman, Cathal Kenny, Declan Morrissey
Share Price Performance
Key financials ($m)
Year end Dec13E Dec14F Dec15F
Revenue 1339.3 1455.4 1542.7
EBITDA 170.1 184.2 197.1
Total Op. Pft. 125.5 145.2 158.1
Op. Mrg. (pre G/W)(%)
9.4 10.0 10.2
PBT 120.5 145.6 158.7
EPS Basic 164.6 198.0 215.9
EPS Diluted (Adj) 169.4 193.3 210.7
Valuation
P/E 28.8 25.2 23.1
FCF Yld (pre div)
(%) 3.5 3.8 4.1
Price / Book 3.5 3.1 2.7
EV / EBITDA 16.4 14.5 12.9
Group Interest
Cover (x) 313.8 N/A N/A
Financial Data
ICON :Financial model and valuation analysis
CRO Sector Review
ICON (ICLR US)
9 Davy Research
Circulation volumes continue to decline
DAVY VIEW
Newspaper circulation volumes continue to decline and
unsurprisingly, the most recent data release from ABC contains
little to get excited about. However, from an INM perspective,
the declines are in line with forecasts. We expect newspaper
circulation to remain pressured as consumers shift from print to
online, and our forecasts therefore assume that volumes
continue to decline for the foreseeable future. The biggest
question is the extent to which INM can successfully grow an
earnings-generating online business of sufficient scale to offset
current and future volume declines.
INM portfolio outperforms the broader market
On February 20th, the Audit Bureau of Circulation (ABC) released newspaper circulation
data for the island of Ireland. Unsurprisingly, circulation volumes continued to fall across
the board in 2013, with the rate of decline broadly in line with recent trends.
The Irish Independent saw volumes decline by 5.3%, which is in line with our forecasts
for the broader INM portfolio. The paper outperformed its nearest competitors, The Irish
Times and The Irish Examiner, which experienced volume declines of 7.1% and 6.4%
respectively. The Evening Herald was once again the best-performing daily title in the
market, with circulation falling 4.6%.
With the exception of The Sunday Independent, the Sunday market generally performed
worse than the daily market. The Sunday Independent saw volumes decline by 3.3%,
while The Sunday Business Post and the The Irish Times weekend edition saw volumes fall
by 12.9% and 8.6% respectively.
Independent News & Media
OUTPERFORM Closing price:14.9c
Simon McGrotty [email protected] / +353 1 6148701
Media Team Simon McGrotty
Share Price Performance
Key financials (€m)
Year end Dec13E Dec14F Dec15F
Revenue 329.6 317.1 312.5
EBITDA 38.0 35.5 38.0
PBT 3.6 32.5 35.3
EPS Basic -2.0 2.1 2.3
EPS Diluted (Adj) 1.3 2.1 2.3
Cash EPS (Diluted) 2.6 2.7 2.8
Dividend 0.0 0.0 0.0
NBV 21.9 10.2 12.5
Valuation
P/E 11.5 6.9 6.4
Dividend Yield (%) N/A N/A N/A
FCF Yld (pre div) (%)
N/A N/A 8.5
Price / Book 0.7 1.5 1.2
EV / EBITDA 5.1 5.5 4.7
EBITDA Int. Cover (x)
1.8 5.1 5.6
Debt / EBITDA (x) 2.8 3.0 2.4
Financial Data
Independent News & Media :Financial model and valuation analysis
European newspapers Sector Review
Independent News & Media (INM
ID)
10 Davy Research
CPI, January: low inflation poor indicator of health of Irish economy
DAVY VIEW
Yesterday’s CPI release shows annual inflation remaining at
0.2% in January. The story remains the same as it was in 2013,
with externally-driven oil prices and interest rates keeping a lid
on inflation. In contrast, domestically-driven services inflation is
now running at a much punchier 3%, better reflecting the
recovery in the domestic economy through the second half of
2013.
Spectre of deflation not as worrying as it first looks
Annual inflation remained at subdued levels in January. Prices, as measured by the CPI,
fell 0.5% over the month – leaving annual inflation unchanged on December at 0.2%.
The HICP measure fell to 0.3% year-on-year (yoy) from 0.4% over the month. As had
been the case for much of 2013, two factors in particular have pushed down on the CPI
over the past year – oil prices and interest rates.
In the year to January, mortgage interest costs were down 10.4% while energy costs had
fallen by 1.2%. Together, these account for 17% of the index so downward movements
in both have sufficed to push down on the overall index. In contrast, domestically-driven
services price inflation (excluding mortgage interest) was running at a punchier 3%
annual rate, unchanged since November. The price rises in services better reflect the
recovery in the wider economy in the second half of 2013.
The sectors contributing most to inflation over the year were Alcohol and Tobacco
(+4.3%), Education (+4.6%), Restaurants and Hotels (+1.9%) and miscellaneous items
(+2.8%). The rises in alcohol prices reflect higher excise duties in Budget 2014, while
increasing education costs can be attributed to higher third level tuition fees. Rises in the
miscellaneous category largely reflect higher insurance costs (+4.4% yoy). The rise in the
restaurants and hotels sector over the year is an encouraging sign of businesses in that
sector regaining pricing power as domestic demand picked up over the course of the
year.
For some households, hefty price rises in the above categories will be more than enough
to offset the benefits from lower energy and mortgage costs. Taken together with
further, albeit smaller, hits from Budget 2014, this should keep a lid on disposable
income growth in the short term. However, the benign outlook for oil prices and interest
rates means a bout of deflation this year is not out of the question and, along with a
pick-up in wage growth in an ever-improving labour market, could yield real wage
growth this year for the first time since the crisis began.
David McNamara [email protected] / +353 1 6148819
Economics Team Conall Mac Coille, David McNamara
Irish economy
11 Davy Research
The Day in Numbers
Index value Change % Change
IRISH MARKET
Total Market (ISEQ) 4986.3 9.2 0.2
ISE Financials Index 457.9 1.9 0.4
ISE General Index 6565.9 10.4 0.2
ISE Small Cap Index 3302.6 -27.6 -0.8
SECTOR INDICES
FTSE E300 Constr. & Mats. 1743.6 -8.1 -0.5
FTSE E300 Food Producers 2072.7 5.2 0.3
FTSE E300 Travel & Leisure 1910.2 -2.8 -0.2
EUROPEAN MARKETS
FTSE Eurofirst 300 1338.8 0.1 0.0
FTSE 100 6813.0 16.3 0.2
CAC 40 4355.5 14.4 0.3
DAX 9618.9 -41.2 -0.4
US MARKETS
S&P 500 1839.8 11.0 0.6
Nasdaq 4267.5 29.6 0.7
DJIA 16133.2 92.7 0.6
REST OF THE WORLD
ASX All Ordinaries 5421.3 5.7 0.1
FTSE/JSE Africa All Share 47149.4 -289.0 -0.6
NZX 50 4909.8 -4.3 -0.1
Hang Seng 22478.7 -84.6 0.4
Shanghai SE Composite 2138.8 -3.8 -0.2
Nikkei 225 14865.7 416.5 2.9
MSCI World 1180.4 2.3 0.2
COMMODITIES
Brent Oil $/bbl 110.5 -0.1 -0.1
Gasoline USc/gal 281.5 -1.0 -0.3
Gold $/t oz 1315.0 -4.6 -0.3
Natural Gas GBp/therm 58.0 -0.3 -0.5
EXCHANGE RATES
Stg/EUR 0.8235 0.0000 0.0
USD/EUR 1.3717 -0.0018 -0.1
USD/Stg 1.6654 -0.0018 -0.1
INTEREST RATES
Euro 3 Mth Money Rate 0.29 -0.00 -0.4
UK 3 Mth Money Rate 0.52 0.00 0.0
US 3 Mth Money Rate 0.24 0.00 0.9
BOND YIELDS
Ireland 10 Yr Bond Yield 3.20 -0.02 -0.7
Euro 10 Yr Bond Yield 1.70 0.04 2.1
UK 10 Yr Bond Yield 2.80 0.07 2.6
US 10 Yr Bond Yield 2.76 0.01 0.3
12 Davy Research
Important disclosures Analyst certification Each research analyst primarily responsible for the content of this research report certifies that: (1) the views expressed in this research report accurately reflect his or her personal views about any or all of the subject securities or issuers referred to in this report and (2) no part of his or her compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this report.
Investment ratings A summary of existing and previous ratings for each company under coverage, together with an indication of which of these companies Davy has provided investment banking services to, is available at www.davy.ie/ratings.
Investment ratings definitions Davy ratings are indicators of the expected performance of the stock relative to its sector index (FTSE E300) over the next 12 months. At times, the performance might fall outside the general ranges stated below due to near-term events, market conditions, stock volatility or – in some cases – company-specific issues. Research reports and ratings should not be relied upon as individual investment advice. As always, an investor's decision to buy or sell a security must depend on individual circumstances, including existing holdings, time horizons and risk tolerance.
Our ratings are based on the following parameters:
Outperform: Outperforms the relevant E300 sector by 10% or more over the next 12 months.
Neutral: Performs in-line with the relevant E300 sector (+/-10%) over the next 12 months.
Underperform: Underperforms the relevant E300 sector by 10% or more over the next 12 months.
Under Review: Rating is actively under review.
Suspended: Rating is suspended until further notice.
Restricted: The rating has been removed in accordance with Davy policy and/or applicable law and regulations where Davy is engaged in an investment banking transaction and in certain other circumstances.
Distribution of ratings/investment banking relationships
Investment banking services/Past 12 months
Rating Count Percent Count Percent
Outperform 59 54 24 72
Neutral 25 23 4 12
Underperform 13 12 0 0
Under Review 3 2 2 6
Suspended 5 4 0 0
Restricted 3 2 3 9
This is a summary of Davy ratings for all companies under research coverage, including those companies under coverage to which Davy has provided material investment banking services in the previous 12 months. This summary is updated on a quarterly basis. The term 'material investment banking services' includes Davy acting as broker as well as the provision of corporate finance services, such as underwriting and managing or advising on a public offer.
Regulatory and other important information J&E Davy, trading as Davy is regulated by the Central Bank of Ireland. Davy is a member of the Irish Stock Exchange, the London Stock Exchange and Euronext. In the UK, Davy is authorised by the Central Bank of Ireland and authorised and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our authorisation and regulation by the Financial Conduct Authority are available from us on request. No part of this document is to be reproduced without our written permission. This publication is solely for information purposes and does not constitute an offer or solicitation to buy or sell securities. This document does not constitute investment advice and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities/strategy discussed in this report may not be suitable or appropriate for all investors. The value of investments can fall as well as rise and there is no guarantee that investors will receive back their capital invested. Past performance and simulated performance is not a reliable guide to future performance. Projected returns are estimates only and are not a reliable guide to the future performance of this investment. Forecasted returns depend on assumptions that involve subjective judgment and on analysis that may or may not be correct. Any information related to the tax status of the securities discussed herein is not intended to provide tax advice or to be used as tax advice. You should consult your tax adviser about the rules that apply in your individual circumstances.
This document has been prepared and issued by Davy on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst all reasonable care has been taken in the preparation of this document, we do not guarantee the accuracy or completeness of the information contained herein. Any opinion expressed (including estimates and forecasts) may be subject to change without notice. We or any of our connected or affiliated companies or their employees may have a position in any of the securities or may have provided, within the last twelve months, significant advice or investment services in relation to any of the securities or related investments referred to in this document.
While reasonable care has been taken in the preparation of the information contained in this document, no warranty or representation, express or implied, is or will be provided by Davy or any of its shareholders, subsidiaries or affiliated entities or any person, firm or body corporate under its control or under common control or by any of their respective directors, officers, employees, agents, advisers and representatives, all of whom expressly disclaim any and all liability for the contents of, or omissions from, this document, the information or opinions on which it is based and/or whether it is a reasonable summary of the securities in this document and for any other written or oral communication transmitted or made available to the recipient or any of its officers, employees, agents or representatives.
Neither Davy nor any of its shareholders, subsidiaries, affiliated entities or any person, form or body corporate under its control or under common control or their respective directors, officers, agents, employees, advisors, representatives or any associated entities (each an "Indemnified Party") will be responsible or liable for any costs, losses or expenses incurred by investors in connection with the information contained in this document. The investor indemnifies and holds harmless Davy and each Indemnified Party for any losses, liabilities or claims, joint or several, howsoever arising, except upon such Indemnified Party’s bad faith or gross negligence.
13 Davy Research
Share ownership policy Davy allows analysts to own shares in companies they issue recommendations on, subject to strict compliance with our internal rules governing own-account trading by staff members. Readers should be aware that analysts writing in this publication may own shares in the stocks covered. If you require further details, please contact [email protected]. We are satisfied that our internal policy on share ownership does not compromise the objectivity of analysts in issuing recommendations.
Conflicts of interest Our conflicts of interest management policy is available at www.davy.ie/ConflictsOfInterest.
Davy acts as stockbroker to Abbey; Aminex; ARYZTA; Bank of Ireland; C&C; CPL; CRH; DCC; Dragon Oil; Fyffes; GameAccount Network; Glanbia; Green REIT; ICON; IFG Group; Independent News & Media; Kenmare Resources; Kerry Group; Merrion Pharmaceuticals; Minco; Mincon; Norish; NTR; One51; Origin Enterprises; Ormonde Mining; Ovoca Resources; permanent tsb Group; Petroceltic; Petroneft; Prime Active Capital; Providence; Ryanair; Smurfit Kappa Group; Total Produce; Tullow Oil; TVC Holdings and UDG Healthcare.
The remuneration of the analyst(s) who prepared this report is based on various factors including company profitability, which may be affected to some extent by revenues derived from investment banking.
Davy is registered to act as market-maker in the securities of certain companies by the Irish Stock Exchange and London Stock Exchange. Details are available at www.davy.ie/RegulatoryDisclosures.
Davy may have acted, in the past 12 months, as lead manager/co-lead manager of a publicly disclosed offer of the securities in certain companies included in this report. Investors should be aware that Davy may have provided investment banking services to, and received compensation from, certain companies included in this report in the past 12 months or may provide such services in the future. The term investment banking services includes acting as broker as well as the provision of corporate finance services, such as underwriting and managing or advising on a public offer.
Davy may have a shareholding in certain companies included in this report which exceeds 5% of their total issued share capital. Details are available at www.davy.ie/RegulatoryDisclosures. These shareholdings include proprietary positions and discretionary holdings. This disclosure represents the position of Davy as of close of business on the Friday preceding issue of this report.
Other important disclosures A description of certain companies included in this report is available at www.davy.ie/RegulatoryDisclosures. A summary of our standard valuation methods is available at www.davy.ie/ValuationMethodologies. All prices used in this report are as of close on the previous trading day unless otherwise indicated. A summary of existing and previous ratings for each company under coverage, together with an indication of which of these companies Davy has provided investment banking services to, is available at www.davy.ie/ratings.
The data contained in this research note have been compiled by our independent analysts, based on a combination of publicly-available information and the analysts assumptions and modelling. Further information is available upon request.
This document does not constitute or form part of any offer, solicitation or invitation to subscribe or purchase any securities, nor shall it or any part of it form the basis of, or be relied upon in connection with, any contract or commitment whatsoever. Any decision to purchase or subscribe for securities in any offering must be made solely on the basis of the information contained in the prospectus or other offering circular issued by the company concerned in connection with such an offering.
This document has been prepared by its authors independently of the company or companies covered. Davy has no authority whatsoever to give any information, or make any representation or warranty on behalf of the company or companies. In particular, the opinions, estimates and projections expressed in it are entirely those of the analysts and are not given as an agent or financial adviser of the company or companies.
In the UK this document is restricted to (i) persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (ii) high net worth entities falling within Article 49(2)(a) to (d) of the Order.
Please note that in accordance with the Central Bank of Ireland's Market Abuse Rules, no person, other than a market-maker, may enter into any transaction or arrangement which would have the effect of generating a net economic benefit arising from a fall in the price of the following shares: the Governor and Company of Bank of Ireland, Allied Irish Banks plc, permanent tsb Group and Anglo Irish Bank Corporation plc. Please refer to the Market Abuse Rules for full details.
US Securities Exchange Act, 1934 This report is only distributed in the US to major institutional investors as defined by S15a-6 of the Securities Exchange Act, 1934 as amended. By accepting this report, a US recipient warrants that it is a major institutional investor as defined and shall not distribute or provide this report or any part thereof, to any other person.
Distribution of research to clients of Davy Securities in the US Davy Securities distributes third-party research produced by its affiliate, J & E Davy. Davy Securities is a member of FINRA and SIPC and is regulated by the Central Bank of Ireland. Davy Securities does not act as market maker. Davy or an affiliate holds a proprietary position and/or controls on a discretionary basis more than 1% of the total issued share capital of Donegal Investment Group; Mincon; Ormonde Mining; Ovoca Gold; Petroneft and TVC Holdings. This information was current as at the last business day of the month preceding the date of the report. An affiliate of Davy Securities may have acted, in the past 12 months, as lead manager/co-lead manager of a publicly disclosed offer of the securities in certain companies included in this report. Investors should be aware that an affiliate of Davy Securities may have provided investment banking or non-investment-banking services to, and received compensation from, certain companies included in this report in the past 12 months or may provide such services in the next three months. The term investment banking services includes acting as broker as well as the provision of corporate finance services, such as underwriting and managing or advising on a public offer.
FTSE licence Davy is licensed by FTSE International Limited to publish the FTSE Indices on a delayed basis. FTSE International shall not be responsible for any error or omission in the FTSE Indices. All copyright and database rights in the FTSE Indices belong to FTSE International or its licensors. Redistribution of the data comprising the FTSE Indices is not permitted. You agree to comply with any restrictions or conditions imposed upon the use, access, or storage of the data as may be notified to you by FTSE or Davy and you may be required to enter into a separate agreement with FTSE or Davy.
Confidentiality and copyright statement Davy, Research Department, Davy House, 49 Dawson St., Dublin 2, Ireland. Confidential © Davy 2014.
