19 Feb 2019

Kerry Group posts solid 2018 results

Kerry this morning issued a solid set of FY18A numbers in line with our and market expectations, reporting a 3.7% increase in adjusted EPS to 353.4c (INVe 352.7c, consensus 350.6c) from a 3.1% increase in Group revenue to €6.61bn (INVe €6.57bn, consensus €6.56bn).

Trading profit increased 3.1% to €805.6m (INVe €807.6m). At the Group level, volumes were up 3.5% but pricing was down 0.5% (INVe +3.6% and -0.8%, respectively). The dividend per share has been increased by 12% to 70.2c, ahead of our and consensus expectation of 68.9c. Looking forward, management is guiding 6% to 10% adj. EPS growth for FY19E.


At a divisional level, Taste & Nutrition (89.0% of FY18A trading profit) reported a 4.9% increase in trading profit to €805m (INVe €802.1m) from a 3.7% increase in revenue to €5.35bn (INVe €5.32bn). LFL revenue growth of 3.5% (INVe 3.3%) was driven by a solid 4.1% increase in volumes (INVe 4.2%) tempered by a 0.5% decrease in pricing (INVe -0.9% forecast). While reported revenue was augmented by a 4.2% contribution from acquisitions (INVe 4.5%) growth was tempered by a 4.0% FX headwind (INVe -4.7%). The Consumer Products division (11.0% of FY18A trading profit) reported a 7.2% decrease in trading profit to €100m (INVe €102.4m) despite a 0.6% increase in revenue to €1.34bn (INVe €1.33bn). LFL revenue growth of 0.4% (1.1% volume; -0.4% pricing; -0.3% transactional FX) was only marginally behind our forecast of 0.5% growth (+1.4% volume, -0.5% pricing; -0.5% transactional FX). Reported revenue was impacted by a 0.6% FX headwind (INVe -0.7%) but augmented by a 0.8% contribution from acquisitions (INVe 0.5%).


FY18A results were in line with market expectations and while guidance of 6% to 10% adj. EPS growth in FY19E suggests a mid-point of 381.7c which is c.1% behind current market forecasts, expectations of FX tailwinds in 2019 will probably result little change to consensus numbers on the back of these results.


Bank of Ireland Group: Too much negativity priced in

We have a preview note out on BIRG's FY18 results (Feb 25th) this morning. 


We think too much negativity is being priced in by the market on a number of issues: Brexit noise, NIM headwinds, volume growth, cost take out potential, and a general ability to execute the transformation programme on cost/schedule.


For FY18E we expect underlying operating profit before impairment charges of €958m and attributable income of €708m, this supported by NIM 222bps (FY17 229bps), net interest income €2,160m (-4% y/y), other income €698m (-13% y/y but +5% underlying), underlying costs €1,860m (-2.1% y/y), a positive impairment release of €21m, and flattish loan volumes of €76.4bn (+0.4% y/y). We expect a statutory ROE of 7.5% and an adjusted ROTE of 9.1%, helping to generate a basic EPS of 63.2c (FY17 59.1), adjusted EPS 72.7c, a year-end FLCET1 of 14.0%, and allowing 15.8c of DPS (FY17 11.5c).


All of these figures are broadly in line with consensus, with the exception of our lower customer loan volume and higher FLCET1 expectations.


AIB Group: Donal Galvin the new CFO?


The Irish Times is this morning reporting that, unsurprisingly, the board of AIB Group has picked Donal Galvin to be the new group CFO.


Mr Galvin had been the favourite for the position that is being vacated by the departing CFO Mark Bourke, having been previously named deputy CFO and currently designated as interim CFO while the selection process took place.


Mr Galvin is currently also Group Treasurer and was previously Head of Markets.


The Irish Times reports that the board of AIB has begun informing financial regulators of its intention to appoint Mr Galvin to the role, and we expect approval for this from the CBI and ECB to be relatively straightforward given his current role(s) within the bank. AIB recently selected Dr Colin Hunt to be its new CEO, replacing the departing Bernard Byrne. AIBG reports its FY18 results next week on March 1st.


Secret seven split


In what was apparently one of the worst kept UK political secrets (within political circles) in recent times, seven UK Labour party MP’s announced their resignations from the party. Citing the Labour leaderships disastrous approach to the ongoing Brexit crisis and rampant anti-Semitism within the rank and file of the party, Luciana Berger announced at a press conference yesterday morning that they were to splinter from the party to form their own ‘Independent Group’. Labour’s deputy leader, Tom Watson, in introspective mood said he didn’t consider the seven as traitors and he was quick to emphasise that he thought that “This is a moment for regret and reflection, not for a mood of anger or a tone of triumph”. Labour Leader, Jeremy Corbyn kept things slightly more succinct and adopting his best parental tone he said “I’m disappointed”.


UK labour data due


The last labour market release presented a picture of a solid UK labour market. It showed that the rate of unemployment fell back from 4.1% to 4.0% in the three months to November. Furthermore, the ‘single month’ number for November fell to a series low of 3.8%, whilst the number of jobs rose strongly, by 141k. UK economic data weakened markedly in December; monthly GDP fell by 0.4%. Indicators for the start of 2019 have also remained sluggish. If persistent this could have read across to the jobs market eventually, but we are not expecting an impact to be evident in the upcoming figures. As such, we expect the headline unemployment rate to hold steady at 4.0%, albeit with the single month measure just ticking back up to 3.9% amidst normal survey volatility.


On the pay side, there were relatively few changes. Average weekly earnings growth ticked up to 3.4% (3m y/y) in November from 3.3% in October. Furthermore, the more important ex-bonus measure held fast at 3.3%, in line with consensus and Investec estimates. We note that survey indications relating to December pointed to further pay growth pressures. Indeed the KPMG REC report noted “as demand for workers generally outstripped supply, starting pay continued to increase sharply for both permanent and short-term workers”. In fact, that report stated that the rate of starting salary inflation was among the quickest seen for over three years. Bearing this in mind we expect total pay growth to rise from 3.4% to 3.5% and we suspect that earnings growth ex bonuses will hold steady at 3.3%on a 3m y/y basis.


Europe hoping for a rebound in survey data


The ECB struck a notably more dovish tone in the past month, with driving expectations of the timing of the first rate hike into 2020, and increasing the prospect of more easing (in the form of TLTRO’s) to combat a weakening outlook in the Eurozone. This change in expectations has kept the euro subdued against a pound that is battling the uncertainty of pending Brexit, and a dollar, whose own central bank have also adopted a shift towards a more accommodative outlook. One of the catalysts for this change in tone was a raft of poor sentiment data in December and March which showed the outlook in certain sectors of the Eurozone economy (most notably the French Services sector and the German manufacturing sector) at their most negative for over 5 years.


This week, we see the next iteration of Eurozone sentiment surveys where we hope to see a turnaround in sentiment.  The first major print is German ZEW survey (10am), which reached a 4 year low last month. More importantly the outlook component, which has been consistently negative since mid-2018, is expected to continue to improve from the 7 year lows set in October of last year.


Beyond today, Thursday will see preliminary PMI survey data for Germany and France, where all of the major disappointing data points from February are forecast to improve moderately. The ECB will be hoping this is the first sign of a turning point in EU data/outlook, but markets will require a few firmer data points before euro sentiment rebounds.


Economic releases


09.30   UK        Unemployment data (Dec)

10.00   GE       ZEW survey (Feb)

13.50   US        Fed’s Mester speaking

15.00   EU        ECB’s Praet speaking