16 Apr 2019

Dalata: Top of the charts

We publish a note on Dalata this morning following its recent positive set of FY18 results. We revisit the investment case for the stock and assess the outlook in each of the group’s three operating regions.



The Irish market will remain key for Dalata’s earnings and the group’s Irish operations should continue to benefit from favourable economic trends. Occupancy levels in both Dublin and Ireland reached the top of European charts in 2018, tourism is at record levels, domestic consumers are spending and corporate activity is still robust. In the UK, RevPAR continues to expand and current uncertainties may even be helping the group’s growth ambitions in regional cities. We make only minor adjustments to our FY19E/FY20E forecasts but roll forward our forecast horizon to FY21E, a year in which the group will begin to see the fruits of the next phase of its growth.

Irish Economy: Back into surplus

Ireland’s CSO published its latest Government Finance Statistics release yesterday. This confirms that the public finances achieved an important milestone in 2018, as they transitioned back into surplus. Unsurprisingly, the headline general government debt / GDP ratio has continued its downward trend.

Last year the general government balance was +€0.05bn, equivalent to 1bps of GDP. While only a wafer-thin surplus, it brings to an end a sequence of 10 consecutive years of annual deficits. Swollen by banking sector recaps, the deficit peaked at the equivalent of 32% of GDP in 2010 before improving steadily in every year thereafter. General government gross debt stood at €206.2bn at end-2018, equivalent to 64.8% of GDP (so getting closer to the important 60% level). At its worst, the headline general government debt / GDP ratio stood at 124.6% in Q113, although some factors pertaining to the multinational sector have flattered the improvement since then.

As we so often say, headlines seldom tell the full story where the Irish economy is concerned and these data are no exception. Net debt was €177.6bn at end-2018, so nearly €30bn below the headline gross debt figure. It is equivalent to 55.8%. The NTMA’s large cash buffer (prudently established ahead of a series of debt maturities falling due in 2019 and 2020) is a key factor in the gross-to-net ‘walk’. Given the ultra-low interest rate environment, we can see the merits in raising cheap long-term funding now to help meet the cost of extinguishing costly crisis-era liabilities.

We are sympathetic to the calls from a number of commentators for the government to run larger underlying surpluses at this point in the cycle to help accelerate the pace of repairing the State balance sheet. However, realpolitik considerations (Ireland has a minority government, which may find the arithmetic in the Dáil, or lower house of parliament, even trickier following next month’s European Elections) mean that the government has relatively limited options on the fiscal front.

Rosengren & Evans talk inflation

Boston Fed President, Eric Rosengren, in sticking with the current Fed mantra, said last night that the Fed should be “patient” in their search for their elusive 2% inflation target. He conceded that while the current rate is not quite at their 2% target, the Fed might be “forced to accept below 2% inflation during recessions” but could “commit to achieving above 2% inflation in good times, so as to provide more policy space to counteract the next recession” and that his “own preference is for the Federal Reserve to adopt an inflation range that explicitly recognises the challenge of the effective lower bound.” Chicago Fed President, Charles Evans, echoed a similar sentiment when he said that the Fed should be “willing to embrace inflation modestly above 2 percent 50 percent of the time.” The benchmark EUR/USD rate has been sitting comfortably over the pivotal $1.13 level for the last two (quiet) trading sessions, with the next technical resistance level at just over $1.1330 just in sight.

UK labour data due

The most striking point from last month's labour market data was that the unemployment rate fell back to 3.9% in the three months to January, a low since January 1975. The continued tightening in the labour market largely reflects lower labour productivity growth since the financial crisis and a slowdown in population growth. Despite the recent deceleration in economic activity and a rise in labour force participation, these pressures have resulted in a continued decline in unemployment. For February we expect the jobless rate to be maintained at 3.9. Both the headline and underlying earnings measures have been relatively steady over the past couple of months, with each signalling that pay growth is running at or close to 3½%. This roughly corresponds to 10½ year highs. For February we expect both measures to be recorded at 3.5% (3m yoy), representing a very small shift upwards in the headline figures.

All eyes on Chinese data

This week sees key Chinese data released in the form of GDP numbers, industrial production, and retail sales.  These numbers will be very important as markets are looking for an economic rebound to bolster global risk appetite.  The GDP figure will take the spotlight as growth is expected to have slowed, however, the degree of which will be key given how recent indicators have stabilised.

Economic releases

09.30 UK Average Earnings

09.30 UK Claimant Count Change

10.00 EZ ZEW Economic Sentiment

14.45 US Industrial Production

14.50 EZ ECB’s Nowotny Speaks

19.00 US FOMC Member Kaplan Speaks