25 Apr 2019

Glanbia: Positives and negatives result in little change


We have issued a new report on Glanbia this morning, following yesterday’s trading update. 


While the market focussed on the undoubtedly unexpected 16.5% volume decline in Glanbia Performance Nutrition (INVe +5.0%) in Q119 it all but ignored the equally unexpected 11.2% volume growth in Glanbia Nutritionals (INVe +4.0%) and stronger than expected 9.7% contribution from the Slimfast and Watson acquisitions (INVe 6.4%).


Netting out these different moving parts and updating FX assumptions while leaving margin assumptions unchanged only nets out at a 0.7% pullback in our FY19E forecast adj. EPS to 95.7c from a 1.0% reduction in EBITA to €325.6m and little change to revenue assumptions (+0.2% to €3.65bn). Management is guiding ND/EBITDA at c1.5x by FY19E year-end (INVe 1.52x). “Stretching” this to 2.5x could release €330m for debt-funded acquisitions. At current multiples (15.0x EBITDA), this could add almost 3% to FY20E forecast adj. EPS, providing upside surprise.


Glanbia is trading at 17.1x FY19E P/E and 14.7x EV/EBITDA a weighted average 18.6% discount to its peers, ex-Chr. Hansen. Please contact the sales desk if you have not received a copy of the note.


Sainsbury’s Asda deal mutually terminated

Sainsbury’s has formally dropped its £7.3bn bid to buy Asda after the CMA stuck by its original findings and formally blocked the deal. This has been in the market since the CMA raised serious obstacles to the completion of the deal on the 20th of February. While both Sainsbury’s and Asda were continuing to make a case for the deal, at the time we opined that the remedies the CMA required would be too drastic. When initiating on Sainsbury’s on the 14th of February, we believed that the deal would not go ahead and our forecasts reflect that position and so remain unchanged on today’s development. 


UK PM May to avoid challenge (for now)

The Conservative backbench 1922 Committee rejected calls to change party rules to enable a challenge to Theresa May’s leadership before December. The PM has said that she would step down from no. 10 once the (EU) Withdrawal Agreement has been passed through Parliament and it is possible of course that she steps down voluntarily at some stage later in the year, but for now the procedural pressure on her premiership from the Conservative Party is off (though 1922 Chairman Graham Brady said the Committee would ask May for “a clear roadmap” for her departure if a Brexit deal is not approved).


As far as wider Brexit developments are concerned, there has been some talk that the government will hold some sort of vote in the Commons again next week, perhaps regarding the EU Withdrawal Agreement Bill itself (i.e. the legislation necessary to pass the Withdrawal Act into law). However there has been no confirmation.


In terms of markets, sterling is softer still this morning, hovering close to $1.29, although this partly reflects euro weakness (the single currency is trading a touch above $1.1150). 

Bank of Canada unchanged

The BoC was on hold yesterday as expected, with the key rate maintained at 1.75%. However the tone of the statement was more dovish than anticipated with the removal of language referring to future rate hikes, with a chunky cut to the 2019 GDP growth forecast alongside more cautious language on the outlook overall.


The BoC’s summary at the close of their statement, lays out exactly how they currently stand; “The Governing Council judges that an accommodative policy interest rate continues to be warranted” and “we will continue to evaluate the appropriate degree of monetary policy accommodation as new data arrive.” The CAD weakened sharply after the announcement yesterday afternoon with the EUR/CAD rate jumping from just over 1.5040 to just under 1.5140.


BoJ vows to keep rates on hold until Spring 2020

The BOJ kept its policy rate unchanged at its latest MPC but pledged to keep interest rate extremely low until spring 2020. A weak inflationary environment remains a huge challenge for the BOJ. The extension of the forward guidance suggests that the bank has limited tools to stoke inflation or cope with a potential economic downturn. The BoJ revised down its inflation forecast for the year to March 2021 to 1.3 percent from 1.4 percent. 


Economic releases 

13.30 US Core Durable Goods Orders 

13.30 US Initial Jobless Claims 

13.30 EZ ECB’s De Guindos Speaks