23 Apr 2019
IRES REIT announces new credit facility
Just before the Easter break IRES REIT announced that it had entered into a new revolving and accordion credit facility.
The new facility has been agreed with a syndicate of five banks (Barclays, AIB, Bank of Ireland, Ulster Bank (RBS) and HSBC). The facility is for up to €450m, but it can be extended to €600m, subject to terms and conditions. It will run to April 2024.
This new facility replaces the previous €350m revolving and accordion facility which was due to mature in January 2021. It also carries a reduced margin compared to the previous facility.
This is a very shrewd move by IRES, extending the maturity of its facility at a reduced margin ahead of a busy period of capital investment. At the end of 2018 IRES had drawn down €309m under the former €350m facility and since the start of 2019 the group has purchased a PRS scheme for €14m and announced a forward-funding agreement for a total purchase price of c. €38m. In addition to those outlays, our forecasts assume a further c. €280m of expenditures on expanding the portfolio between now and end-2021, so this expanded facility, allied to underlying cash generation, should broadly meet its requirements (as per our estimates).
Irish REITs: A steady start to 2019 on the investment front
Shortly before the Easter break JLL released its Q119 Ireland Investment Market report. Key points below.
The report shows that total investment volumes in the opening three months of 2019 were €592.1m, the slowest quarterly outturn in six quarters but still impressive against the average long-term (last 15 years) quarterly volume of €496m. The busiest segments in the quarter were office (47% of all transactions), followed by retail (31%) and residential (19%). Dublin was a magnet for deal flow in Q119, with 96% of all transactions in the capital. Overseas investors accounted for 56% of transactions, with “evidence of continued new entrants, with new South Korean, Singaporean, German and Middle Eastern investors active in Q1”.
JLL expect to see a pick-up in investment volumes later in the year, with seven deals greater than €100m currently on market or due to come to the market shortly. For the full year it sees €2.5bn of deals, but this could tip €4.0bn depending on the outcome of the GRN process.
Assuming the JLL projection comes to fruition, this will mean yet another year of above-average activity in the commercial property market here. Good liquidity and strong pricing is helping to underpin a favourable backdrop for the Irish REITs.
Givaudan Revenue solid but awaiting visibility on margin progress
Givaudan continues to integrate its lower-margin Naturex acquisition and roll out its GBS programme, which again has up-front costs before margin benefits might be enjoyed.
Given the strong Q119A revenue update, we are increasing our FY19A FD EPS forecast by 3.4% to CHF85.2, from a 2.4% increase in both EBITDA and revenue to CHF1331m and CHF6220m, respectively. With no change in margin assumptions, the driver to this upgrade is revenue growth in general and fragrance compounds and flavour progress in Latin America in particular. As with other global players over this period (e.g. Danone and L’Oreal), Brazil was called out as particularly strong along with Mexico, Columbia and Argentina.
The company remains focussed on its Givaudan Business Solutions programme. Budgeted to cost CHF170m over four years and generate benefits of CHF125m over that period and then CHF60m per annum going forward, it has now been implemented in Europe and North America and progressing in LATAM and APAC. While undoubtedly beneficial to the efficient running of Givaudan we would also see GBS, perhaps more cynically, as a longer-term cost cutting programme as the company adapts its business model to service a large number of small regional/national customers.
Givaudan currently trades at 30.0x FY19E P/E and 19.7x EV/EBITDA, a 7.1% premium to its peers, (16.0% ex-Chr. Hansen). All eyes are on margin progression on which there will be no visibility until H119 results on 19 July 2019. Ian Hunter (+353 1 4210466)
UK this week
This week is set to be decidedly quiet, given the thin post-Easter break release calendar. However, UK Parliament reconvenes today, we can be sure the Prime Minister will be pressed to provide some further guidance on the next steps in efforts to find a way forward on Brexit. Note that UK economic data is limited too, with March’s public finances release on Wednesday the main focus.
US this week
Stateside there are a few more economic data points of interest; chief amongst these will be Friday’s publication of Q1 GDP numbers. We suspect GDP growth in Q1 will be considerably slower than the +2.2% (saar) pace recorded in Q4, in part due to the partial government shutdown that took place in late December and January. Interest will also centre on housing sector indicators (existing and new home sales), after the minutes to the last Federal Reserve meeting had noted concerns amongst some participants over weakness in the housing market. Meanwhile durable goods data and Michigan consumer sentiment figures will also be published.
Europe & ROTW this week
There are also slim pickings in terms of Euro area data, with releases being limited to Germany’s widely watched IfO survey and industrial and consumer confidence measures from France and for the eurozone as a whole. There will be monetary policy decisions from the Bank of Canada, Bank of Japan and the Riksbank in Sweden. All are expected to hold policy steady.
May under pressure as Brexit talks, UK parliament resume
Last week was a quiet one in terms of Brexit developments, with the UK parliament on Easter recess, and no developments in May and Corbyn’s discussions. Things could change this week, with both parliament reconvening after the Easter break, and talks between the Tory and Labour leaders set to resume today.
A month out from potential European elections (May 23rd), pressure is growing on May from her own party once again. Backbenchers and Brexiteers claim that she has handed too much control over Brexit to the Labour party, and continue to voice their frustration at her refusal to announce a departure date that she promised before her last Withdrawal agreement vote. Graham Brady, chairman of the 1922 committee which controls the process for no confidence votes in the PM has warned that the group could change their rules to allow another vote of confidence after 6 months, rather than the previous 12 months if she has not named a departure date by June 12.
Pressure could grow even further next week as the UK holds local council elections on May 2nd, with Nigel Farage’s Brexit party polling strongly, mostly at the expense of Tory candidates. EURGBP has been trading just above the 0.8650 level, but 0.87p could be a target this week if progress remains elusive.
15.00 EC Consumer confidence
15.00 US New homes sales