28 Jan 2019

AIB Group: AIB in talks to buy Payzone?

Yesterday’s Sunday Times reported that AIB Group is in exclusive talks to acquire Irish payment service provider group Payzone Ireland, with a potential purchase price of around €100m being suggested.

Payzone is owned by US-Irish private equity group Carlyle Cardinal Ireland (CCI), and was formerly part of the listed fintech company Alphyra. Payzone manages electronic bill payments for a variety of customers in the utilities, mobile phone, and transport sectors, as well as point of sale payment devices for over 7,500 Irish retail businesses. It reported a profit of approximately €6.3m for the year to September 2017 (+8.6% vs the €5.8m earned in 2016) under the last set of accounts filed by the business, on turnover of €149.2m (2016 €155.1m). In April 2015, Payzone was acquired by private equity fund CCI for €39m, but a sales process led by London-based corporate finance house Arma Partners was initiated after CCI received what was reported to be an unsolicited approach for the business.

 

An acquisition by AIBG would represent the first significant M&A deal by the Group since its June 2017 ‘IPO’ when the Irish government sold down 28.75% of the 99.9% stake it held in the business. However, during the management roadshow which accompanied that equity sell-down, the potential for M&A in the non-banking space was specifically mentioned by management, as a means to diversify earnings and add capabilities to the Group’s product and service offering.

 

With AIBG having close to €2.8bn in surplus capital (excess capital above minimum management targets) at end FY18e under our model, such an acquisition would make only a small dent in its available firepower, and may be a sensible use of at least some of this surplus capital at a time when regulatory restrictions around repaying it to shareholders remain in place.

 

US government shutdown respite

 

President Trump blinked on Friday evening and agreed to provide the funding to re-open government until 15 February.  What happens then is unclear but acting White House chief of Staff Mick Mulvaney said that Mr Trump would be willing to close the government down again. We would also point out that the debt ceiling will be reset at the beginning of March, which may become another source of government related uncertainty. Near-term though, it is not yet clear how the relevant statistical authorities will catch up with the economic calendar and whether we will get Q4 GDP on Wednesday.

 

UK this week

 

While there are some data releases in the UK this week, notably the manufacturing PMI, all eyes will be on Brexit developments. In short, the key event looks set to be the amendable vote in the Commons on PM May’s ‘plan B’ on Tuesday. As things stand, 14 amendments have been tabled. We cannot be sure which will be selected, but it is quite possible that parliament will vote to gain more control of the Brexit process and that a vote will take place to ask the EU for an extension of Article 50, if Mrs May has not passed a deal through parliament by a set date. The moving parts are many and complex but for now the direction of travel is that the risks of a ‘no deal’ Brexit are falling and the chances of a softer or a delayed Brexit are rising. Indeed this has underpinned sterling’s climb last week but there seem to be plenty of twists and turns yet to come.

 

US this week

 

The FOMC will meet and make its announcement on Wednesday evening. The committee is set to keep the Fed funds target range unchanged at 2.25%-2.50% and maintain the maximum pace of balance sheet consolidation at $50bn a month. Our baseline call though is that the Fed is still set to raise rates in both March and June. Financial conditions are no longer as tight as they were at the turn of the year and we note that the level of the S&P 500 index currently lies some 5% above where it was when the FOMC tightened policy in December. This week also sees a new, key round of US/China trade talks taking place in Washington, which will include Chinese Vice Premier Liu He. These will be conducted against a background of concerns that there has been a lack of progress over intellectual property issues. Indeed although our baseline view is that talks will go well enough to prevent the imposition of additional tariffs by President Trump on 2 March, it has to be recognised that the discussions could stall.

 

Europe & China this week

 

The key event in the eurozone will be ‘preliminary flash’ estimates of Q4 GDP on Thursday. We are forecasting quarterly growth of 0.2% on the quarter, the same pace as in Q3. Germany should have escaped a technical recession in H2 last year (although we do not expect the German number to be identified at this stage). Italy should not be so fortunate. Friday will see ‘flash’ estimates of January’s HICP inflation. In China, official PMIs for both manufacturing and non-manufacturing are released on Thursday, with the Caixin manufacturing version due the following morning. While recent surveys offer some hope that services may have bottomed out, the factory sector remains under pressure. Data on industrial profits at the start of the week will also help to determine the intensity of the squeeze and highlight the incentive for China to hammer out a trade deal with the US.

 
Economic releases
 

14.00 EZ ECB President Draghi Speaks

14.30 UK BoE Gov Carney Speaks