11 Oct 2018

Glanbia: Acquisition

Glanbia this morning announced the acquisition of Slimfast, a weight management and health & wellness business, for $350m. The company, which has been working in the sector for over 40 years, generated $212m in revenue and $24m in adj. EBITDA in 2017, implying a buyout multiple of 8.8x.

While the company was loss-making in 2017, Glanbia has indicated that the deal will be earnings accretive from 2019 onwards. The transaction is expected to be completed by the end of 2018.
 

Irish Economy: Green Bond brings in €3bn

Ireland’s NTMA yesterday raised €3bn from its inaugural Green Bond transaction. The syndicated sale of the 12 year instrument attracted over €11bn of demand from “in excess of 170 individual accounts, a substantial number of which were new accounts”. Helped by this strong demand, this long-term issuance was sold at a yield of just 1.399%. Some 95% of the deal was taken up by overseas investors, with the UK the source of 23% of demand, Germany/Austria and France 19% each, the Nordics 12%, Benelux 11%, ‘Other Europe’ on 6%, Americas 4% and the Rest of the World 1%. Asset managers and banks each took up a third of the issue, with the pension and insurance sector accounting for 19%, Central Banks and other Official Institutions 8%, Hedge Funds 6% and Others 1%. The sale is another example of the NTMA’s willingness to embrace product innovation to facilitate an expansion of its investor base. In recent times the NTMA has also issued the country’s first inflation linked bond and the first century bond. This transaction brings year to date proceeds from bond sales to €16.5bn, which compares to the NTMA’s 2018 target funding range of €14-18bn. The agency will hold one more bond auction this year (on 8 November). The 1.399% yield compares favourably with the country’s blended average interest rate on its Sovereign debt of 2.4% (which should fall as expensive crisis-era issuance is replaced with cheaper new borrowings). 
 

Global stock markets take a hit

Stock markets are selling off around the world following heavy losses on Wall Street. Yesterday the S&P 500 fell 3.3%, the Nasdaq fell 4.1%, its biggest day fall since the immediate aftermath of the EU referendum result on 24 June 2016 and the DJIA dropped 832 points. Investors have ascribed the selloff to being a delayed reaction to recent rise in US Treasury yields, which has brought into focus some of the high valuations of some companies, particularly in the frothy technology sector. This has spilled over into Asian equities markets this morning, with the Topix down 3.9% and the Hang Seng by 4.0%. Mainline Chinese shares are taking a particularly heavy beating, with the Shanghai Composite currently at levels last seen in 2014 after having fallen 4.8% which is leading many to also point fingers of blame at the ongoing US/Chinese trade spat. Though some safe haven seeking has seen yields edge back, with the US 10-year having eased to 3.15%. Futures point to European markets and US equities both opening lower today. 

“Fed has gone crazy”
 

Comments by President Donald Trump in the wake of the selloff have not served to help sentiment. The commander-in-chief said that he thinks the “Fed has gone crazy” in raising interest rates, with the President later doubling down in the wake of criticism by IMF Chief Christine Lagarde by saying that the central bank was “going loco”. He also said that the current equity selloff was “a correction that we’ve been waiting for, for a long time.” Looking ahead, today’s CPI print from the US (out at 13:30) will be closely watched for any signs that the Fed may need to step up the pace of normalisation. Note that the Fed’s Bullard was speaking overnight to try and settle sentiment,  saying “we don’t need to do much more to normalise policy”. It is possible we see other Fed speakers out today to also try and settle sentiment, though the schedule includes just the Kansas City Fed’s Esther George at this stage (at 18:20). Also note that we are at the dawn for the Q3 earnings reporting season with JPMorgan, Citigroup and Wells Fargo all set to deliver their results on Friday.
 

Brexit Update

There were two main parts to yesterday’s Brexit/UK political news. The first was that the DUP, seemingly unhappy with the latest proposals on the Northern Ireland/Republic of Ireland border issue, threatened to vote down the UK Finance Bill, will would typically be viewed as a vote of no confidence in the government. Secondly, and not unrelated, we had the press conference from the EU’s Chief Brexit negotiator which sought to strike an upbeat tone on the status of divorce agreement talks and seeking to play down the customs/border checks that might be required. On future arrangements, Mr. Barnier also said the EU found many points of convergence with PM May’s Chequers plan, though clearly there is much more ground to cover on this than over the divorce deal.  It is being reported that May will meet with her inner Cabinet this evening, ahead of the Article 50 part of next week’s EU Summit (scheduled for 17 Oct). It looks as if the inner Cabinet will discuss how time limited the backstop (and with it continued UK customs union membership) should be, amidst the material pushback coming from the DUP. There are also rumours of threatened resignations of a couple of Cabinet ministers who have been excluded from this inner Cabinet gathering.

Economic Forecast
 

11.30 UK MPC member Vlieghe Speaks
12.30 EZ ECB Minutes
13.30 US CPI
13.30 US Jobless Claims