10 Dec 2019
Irish Economy: NTMA to issue €10-14bn of bonds in 2020
The NTMA yesterday announced that it intends to issue €10-14bn of bonds next year which would represent a modest decrease from the €15.4bn issued this year.
Despite facing a significant redemption profile in 2020, which includes a €10.6bn maturity in April and €20bn in total, the NTMA’s pre-funding strategy means that it will enter the year with cash balances of more than €15bn. If the recent past is anything to go by, we would not be surprised to see the debt agency front-load its issuance in the early part of the year and potentially start this issuance programme in January.
Irish Economy: New car sales remain subdued
The latest CSO data on new vehicle licences show a 1.8% y/y increase in the number of new cars sales in November but, particularly as it is now the low season for such sales, the YTD decrease remains close to unchanged at -6.5%.
There was a strong 16.3% y/y increase in the number of second-hand cars being licensed in Ireland for the first time (i.e. imports) in November, and the YTD change in this category rose to +8.5%. The steep decline in the value of Sterling following the Brexit vote has prompted a significant shift from new car sales to second-hand imports from Sterling retailers in the past three years. Given that recent exchange rate moves are now working against such a trade, it will be interesting to see if the negative trend in new car sales begins to stabilise or improve.
Hibernia REIT: Valuation out of line with evidence
Hibernia delivered a solid set of recent interim results that was short on surprises but showed growth in NAV, rents and dividends. The recent increase to commercial stamp duty rates is unhelpful however, both for valuations and for the implication that the real estate sector is a “soft target” for a government in search of tax revenues. The Dublin office market environment remains positive, buoyed by strong tenant demand and take-up levels. Indeed, this looks set to be the third successive year of take-up in excess of 3 million sqft, compared with new supply that is expected to average 2 million sqft in the three years to 2021. Hibernia’s development pipeline encompasses short, medium, and long-term projects – the short and medium-term projects could add almost 50% to its rent roll by the middle of the next decade, while the long-term plays are also significant, but unquantified at this stage.
Despite the positivity, Hibernia trades at a 16% discount to its end-September NAV - a discount which we continue to view as wholly anomalous and out of line with the mounting evidence. Most notably, the Green REIT transaction took place at a 3% premium to NAV – although we acknowledge that recent legislative changes have made the economics of such a deal potentially less attractive.
UK Election looms large
The UK heads to the polls this Thursday for the fourth time in as many years following the 2015/2017 general elections and the 2016 EU referendum. Though the Conservatives appear comfortably on course to win a majority, it is worth bearing in mind that the previous three polls delivered outcomes that surprised against expectations.
The final full week of campaigning was relatively uninspiring, culminating in a head-to-head debate between Prime Minister Boris Johnson and Labour leader Jeremy Corbyn in which neither managed to land any heavy blows on the other. A snap YouGov poll showed that 52% of voters believed that Mr Johnson had come out on top, while 48% considered Mr Corbyn to be the victor once the 6% of unsure respondents were excluded.
Mr Johnson also outlined his plans for his first 100 days in office should the Tories remain in power. First, a Queen’s Speech would be scheduled for 19 December before the introduction of Brexit legislation to enable the UK to leave the EU on 31 January. Also, the plans allow for a February Budget which would see the Tories act on their fiscal pledges (e.g. raising the ‘employees’ National Insurance Contributions threshold to £9.5k).
All eyes on YouGov MRP poll
Broader polls on voting intentions continue to point a decent majority for the Prime Minister, with polls of polls placing the Conservatives around 10 points ahead of Labour. There is, however, a significant amount of variation between polls. Six published over the weekend put the party’s lead at between eight and fifteen points. At the upper end of this range, such polls would translate to estimates of a solid Tory majority whereas at the lower end the election looks to be a close affair. Additionally, YouGov have announced that it will publish an update to its multi-level regression and post-stratification (MRP) election model later tonight, at 10:00pm. The MRP approach works by using a large sample to model voting intentions using factors such as socio-economic characteristics and pro ‘leave’ and ‘remain’ attitudes, allowing the pollster to predict individual seat results as well as voting shares.
The YouGov model called 93% of seats accurately in 2017 and correctly predicted a hung parliament, in contrast to other major polling. In its first iteration a fortnight ago, the YouGov MRP model suggested the Conservatives were on course for a clear majority. It predicted that the Tories would win 359 seats (42 more than in 2017) and 43% of the vote (about the same as in 2017) in what would be the party’s best performance in terms of seats won since 1987.
Election Day timeline
Looking ahead to the election itself, voting is set to commence at 7:00am and is set to conclude at 10:00pm. Press coverage during the day will be light, however, with the media barred from reporting on the election campaign from 00:30am until voting ends. But once the embargo is lifted at 10:00pm, we can expect the exit poll to follow shortly afterwards which is judged to be a strong indication of the eventual outcome. Subsequently, results will start to trickle in from around 11:00pm until late morning the following day. But sometime between 4:00am and 5:00am enough constituencies should have reported such that the broad result will be relatively clear.
UK 09.30 Monthly GDP
UK 09.30 Industrial Production