07 Mar 2019

ICG: FY18 in line and calmer seas ahead

ICG’s FY18 results were in line with our forecasts (FY18A EBITDA of €68.4m vs. €68.3m forecast) but reflect the operational difficulties experienced during the year.

EBITDA in the primary Ferries division was -20.4% y/y to €53.6m, however ICG’s Container & Terminal (C&T) division posted a strong performance with EBITDA +8.0% y/y to €13.7m. Net debt ended the year at €80.3m following significant fleet investment during the year (the WB Yeats purchase and other fleet improvements). Fuel costs increased to €48.2m, but were in line with our forecast. The DPS was again hiked by 5% to 12.77c for the FY.


The group has made a positive start to FY19. RoRo Freight volumes are +10.4% YTD with increased capacity on the WB Yeats and soft comps helping, while y/y tourism volumes have been impacted by the planned suspension of fast craft winter sailings and later booking availability on the new ship. Car and passenger volumes are -9.7% and -11.3% YTD respectively, but in line with the group’s expectations at this point. Strong momentum has been maintained in the C&T division with container volumes +7.6% YTD and port lifts +5.6% YTD, reflecting both strong economic activity and technological advances at Dublin Ferryport Terminals.


We are leaving our EBITDA forecast for FY19E unchanged at €88.0m. FY19E net debt moves to €45m from €19m however reflecting earlier than expected investment in scrubber technology (we previously anticipated this spend in FY21E).


Cairn Homes: FY18 in line and positive outlook


Cairn Homes reported FY18 results this morning which show its headline financials in line with its trading statement issued on 17th January and other key items broadly in line with our forecasts. As previously disclosed, Cairn completed 804 unit sales in FY18, booked revenues of €337m and recorded a gross margin was 20.5%.


Elsewhere, admin expenses of €15.9m were in line with our forecast, while finance costs (excluding exceptionals) of €11.7m were €1.0m lower than we expected. PBT of €37.6m was marginally above our forecast and net debt of €134.4m was a little lower than our forecast of €139.6m. The company intends to announce a 2.5c interim dividend in September – six months earlier than anticipated. The forward sales pipeline is strong at 471 units with a total sales value of €201.4m – this has increased from 344 units with a value of €159.5m in mid-January.


House price inflation averaged 4.5% across Cairn’s active sites during 2018, which is in line with our analysis of sales records. On the cost front, Cairn experienced cost inflation of 2.75% in the past 12 months, a small but encouraging reduction from 2.9% as reported in September, and evidence of the benefits of operating at scale in a fragmented market. 81% of this year’s costs are fixed, as are 71% of those in 2020. Also of note, the group has identified up to 3,000 units in its portfolio that could be sold to the PRS sector and will commence four such schemes, including the near-term launch of 280 units at Citywest. This is a sensible move in our view given the wall of money (€7bn according to one agent) chasing such assets.


Irish Banks: Mortgage approvals disappoint in January


Irish mortgage approvals data from the BPFI (released yesterday mid-morning) suggest the pipeline of demand for mortgages has started the year slowly, with €672m in new approvals in January 2019, slightly up (+2.4%) on the €656m seen in December, slightly lower (-2.5%) than the €689m seen in January 2018, but around 20% lower than the monthly average of €844m seen last year (€10.1bn total).


The twelve month running total of approvals remained at €10.1bn, while average approvals values in January of €221k were flat to the average seen last year and indicative of the moderation in house prices that we have seen in the last twelve months. We remain confident that new mortgage lending in Ireland will expand to around €10bn in 2019, from €8.7bn in 2018, and would not read too much into the January data in isolation.


In addition to the mortgage approvals data, the BPFI also released its quarterly housing market monitor for Q418. The monitor noted that the role of non-household house buyers (i.e. institutional or professional corporate landlords) in the market had increased significantly in recent years, and now accounts for 17% of all transactions and 22% of all new build transactions in 2018 (2010 c.4% and c.7%). These data fit with our previous comments around the increasing role of the Private Rental Sector (PRS) or Build-to-Rent schemes, which sees retail home buyers (owner occupiers or private BTL) in competition with better funded institutional buyers. This sees a growing proportion of new home completions transacting outside of the traditional mortgage market, and is one of the primary reasons, in our view, for the undershoot in new mortgage drawdowns in Ireland last year.


Risks to remain to the downside


The last meeting on 24 January, saw the ECB shift its assessment of the balance of risks to the downside (previously broadly balanced). Such a move was not unexpected in light of the continued weakness of Euro area indicators. Indeed President Draghi revealed that the GC was unanimous in acknowledging the risks and those factors behind them. The President listed these as protectionism, geopolitical (Brexit was mentioned), financial market volatility and country specific factors (Germany’s auto industry in particular). This view is unlikely to have changed over the course of the last six weeks but if anything the continued persistence of weak data has led to a more dovish tilt from ECB GC members in their public comments.




Since the January meeting it has become more apparent that the ECB is actively looking at a new longer term refinancing operation. Any new scheme would be aimed at addressing issues around bank liquidity requirements arising from the first maturity of Targeted Longer Term Refinancing Operations (TLTRO) in 2020. We suspect that an announcement will take place at the 6 June meeting rather than next week, given the ECB appears to be working on the details. We would expect that any new liquidity operation will be on less generous terms than the current targeted operation and will more resemble a standard LTRO rather than the TLTRO. One final point is that given the purpose of such a scheme, it would not necessarily result in a big net injection of liquidity and as such, should have a limited impact on the euro.


ECB rate increases to be shallower


We expect today’s GC meeting to avoid any hasty decisions and for now to avoid any update to its current interest rate guidance, which states that the key ECB interest rates are expected to “remain at their present levels at least through the summer of 2019”. However we would expect some guidance later this year (most likely June) that whilst a hike this year is off the cards, a 2020 move is still possible should the economy recover in H2. Given the uncertainties around the persistence of the current soft patch and our expectation that the ECB is likely to remain patient, we have pushed back our forecasts for the first move in ECB interest rates. We now expect the first move in the deposit rate (+20bps increase to -0.20%) to take place in March 2020, rather than our previous forecast of September 2019. We also now expect the path of ECB rate increases to be shallower, with the deposit rate now assumed to reach 0.25% in Q4 2020, 50bps lower than our previous forecast.


Brexit update


Talks between the EU and UK negotiators continued at official level yesterday, but whilst they were said to have been conducted in a constructive atmosphere they were described as “difficult”. It is clear that there is much ground to cover if PM May is to secure a sufficient concession on the Irish backstop that will be enough to persuade MPs, particularly the Eurosceptic ERG, to back PM May’s Brexit plan in a meaningful vote next week (expected 12 March). Talks look set to run to the wire amidst discussion that PM May could be in Brussels as late as Monday trying to find a compromise. Meanwhile EU officials have urged the UK to table fresh proposals within the next 48 hours after ideas tabled by UK Attorney General Geoffrey Cox seem to have failed to gain traction so far.  In the search for new ideas, the UK is to set up three Brexit advisory groups to find alternative arrangements for the Irish border.  One group will consist of technical experts in trade and customs, which will review advanced use of IT systems and “cutting-edge technologies”. The others will be a business and trade union engagement group and a parliamentary engagement group.


Economic releases


10.00 EZ GDP

12.45 EZ ECB Interest Rate Decision

13.30 EZ ECB Press Conference

13.30 US Initial Jobless Claims

13.30 US Nonfarm Productivity