AIB Group: JV formed to acquire Payzone

The JV, which will be 75% owned by AIBG and 25% owned by FDC, will acquire the ownership interest in Payzone from existing shareholders including Carlyle Cardinal for an enterprise value of up to €100m. Payzone will continue to be led by the existing management team. For the year ended 30 Sept 2018, Semeral Limited, the holding company of Payzone, reported EBITDA before exceptional items of €8.3m and gross assets of €59.0m. The initial cash consideration being paid by the JV for the 95.9% stake of Payzone is c.€61m, which excludes expected net debt of approximately €25m which will be settled by the JV on completion. Additionally there is c.€11m in deferred consideration, contingent on the achievement of certain conditions. A mechanism has also been agreed for the JV to acquire the remaining 4.1% of Semeral which is held by the Payzone management team.
 
The potential for the acquisition by the AIBG/FDC JV has been reported on in Irish media in recent months, and is consistent with AIBG’s management commentary around wishing to add new product capabilities in its core markets. We also view it as a sensible use of its large stack of excess capital which it has available to it, although the impact on FY19 EPS will be relatively negligible. 
 

Glanbia: An increasingly diversified offering 

FY18 results demonstrated the company’s ability to deliver on its volume growth strategy while the Slimfast acquisition not only diversifies the product offering but expands the target market. The balance sheet retains flexibility to fund substantial (c.€460m) acquisitions, providing further potential for upside risk.

We incorporate Glanbia’s adoption of IFRS 15 into our forecasts (South West Cheese JV revenue but not profit recognised) while also tweaking underlying forecasts, including FX. Together, they result in a 1.6% pull back in our forecast FY19E adj. EPS to 96.4c from a 2.4% reduction in EBITA to €328.8m. Incorporating IFRS 15 drives a 38.0% lift to our FY19E revenue to €3.65bn (+3.9% ex-IFRS 15) but a 373bps EBITA margin contraction to 9.0%.

The Slimfast acquisition in FY18 continued Glanbia’s strategy of not only diversifying its product offering but also expanding its potential customer base. The core business also delivered on strong GPN volume growth for a second year in succession, demonstrating the success of its business development policy.

Having paid €313.0m on acquisitions in FY18A, Glanbia ended the year with net debt of €576.7m and ND/EBITDA at 1.8x. We forecast this to fall to €473m and 1.3x, respectively, by year-end FY19E. Expanding this to 2.5x could generate €460m for further debt-funded acquisitions, which at current multiples (15.0x EBITDA) could add a further 4.1% to FY20E adj. EPS.

Glanbia is trading at 18.0x FY19E P/E and 15.0x EV/EBITDA, a weighted average 15.6% discount to its peers, ex-Chr. Hansen. 

UK inflation steady 

Figures released yesterday for March showed the various measures of UK CPI inflation holding steady, with the targeted measure remaining at 1.9%, versus a market expectation of a small firming to 2.0% (Investec 1.9%). Amongst the details rising petrol prices were offset by falling food prices and more moderate inflation in computer game prices. Steady inflation readings were also seen in ‘core’ CPI and CPIH, where inflation was recorded at 1.8% for both measures and against expectations for a small rise to 1.9%.  

Similarly RPI inflation missed expectations softening to 2.4% from February’s reading of 2.5% and weaker than the 2.6% consensus estimate. Producer price inflation measures were released at the same time and saw PPI input prices missing expectations at 3.7% yoy versus a 3.9% consensus, whilst the only price measure that saw above expected inflation was PPI output, where factory gate prices rose by 2.4% versus a 2.1% expectation.  

US-China trade 

Senior US and Chinese officials have scheduled more face-to-face trade talks on April 29 in an effort to reach a deal by early-May. Global risk appetite is likely to be bolstered further as a deal looks within reach. With the US heading back to China, it appears that they are happy to make concessions in order to get a deal done as soon as possible. 

Economic releases 

US:  13:30 Jobless Claims + Retail Sales 

        14:45 PMI 

        17:10 Fed’s Bostic Speaks