Novozymes: Solid Q318A, FY18 guidance tempered

24 Oct 2018

In an environment where challenging conditions in the Middle-East are flagged, Novozymes issued solid Q318A numbers this morning reporting a flat out turn at the FD EPS line at DKK2.76, from a 1.7% decline in operating profit to DKK1041m and a 2.2% increase in revenue to DKK3658m.

LFL revenue growth of 5.0% was impacted by a 1.8% FX headwind and disposals. Guidance at the half year stage was for organic sales growth of 4-6% an EBIT margin of c.28% but a flat outturn at the net profit line. While top line guidance is maintained, management caution that it will “more likely” be toward the lower part of the range. Conversely, the company is now guiding net profit growth of 1-3%. 
 
At the divisional level, Household Care (32% of Q318A Group revenue) reported revenue growth of 0.8% (2.0% LFL) to DKK1186m while Food & Beverages (29% of Q318A revenue) reported growth of 2.3% (3.0% LFL) to DKK1045m. Bioenergy (20% of Q318A revenue) reported revenue growth of 13.5% (15.0% LFL) to DKK723m while the Agriculture & Feed division (14% of Q318A revenue) reported a 3.6% increase in revenue to DKK517m. The smallest division, Technical & Pharma (5% of Q318A Group revenue) disappointed, recording a 23.7% decrease in revenue (-9.0% LFL, disposals -16.0%) to DKK187m. While the two main divisions, which made up 61% of Q318A Group revenue, reported revenue slightly behind our and market expectations, Bioenergy strongly outperformed and margins were better than expected in the third quarter.
 
Irish REITs/Housebuilders: Opportunities abound
 
Today’s Irish Times reports on a number of upcoming property transactions which may have read-through for the Irish REITs and housebuilders. At the Dublin Landings development site in the North Docklands, a build-to-let scheme with 268 apartments is being brought to market nearly 12 months ahead of its expected completion date. Back in June Cairn Homes agreed to sell its Six Hanover Quay (on the opposite side of the river to Dublin Landings) development of 120 apartments and ancillary commercial space for €101m, implying an average price per apartment of €800k. At that sort of price the 268 new build apartments should achieve north of €200m. Given the weight of institutional money chasing PRS assets in Dublin at this time, we don’t see this as an opportunity for the REITs, although the price will provide a handy benchmark for the REIT’s apartments at The Marker (close to Six Hanover Quay), which are in the books at an average value of €0.8m apiece.

Elsewhere, a number of residential development sites have been brought to market in Dublin which shows that the market for land remains healthy. CBRE is marketing a 1.21 acre site in Cabra, Dublin 7 (West of the city centre) with the potential to accommodate a high density scheme (it has in-place permission for a 194 bed space student accommodation scheme with ancillary commercial space). The guide price here is €6m. The second site that CBRE is marketing is at Newcastle, South-West Dublin, where 3.4 acres are being made available by way of a licence agreement. This shovel-ready opportunity comes with planning permission for 49 houses. Elsewhere, NAMA is selling a development site with permission for 296 apartments and houses in Ashtown, Dublin 15 (North-West Dublin). The guide price of €22m compares to the €70m achieved when the 12.3 acre site last changed hands back in 2006. 
 
Euro sags as Italian concerns linger
 
Yesterday the European Commission Vice President Valdis Dombrovskis formally rejected the Italian 2019 draft budget, the first member state budget to be rejected in the EU’s history. He said that “for the first time, the Commission is obliged to request a euro area country to revise its draft budget plan,” adding that “the Italian government is openly and consciously going against commitments made.”  Rome was prepared for the rejection and is still vehement that it won’t budge “one inch” on the revised fiscal plan it will have to deliver within the next three weeks with Italian PM reiterating the fact that “there is no Plan B.” The EU in an equally belligerent mood, said that unless Rome amends its draft budget in the coming weeks, they (Italy) will have to face disciplinary process. The benchmark EUR/USD rate has been on the back foot since the beginning of the week, opening this morning at levels in the low $1.14’s, not seen since late August.

All to do for UK PM: 
 
The Times reports that UK Cabinet ministers have been presented with the proposal that the UK remains in the transition period for an indefinite number of years, rather than its current planned end date of 31 December 2020. This would be achieved using an “annual decision point” which would essentially give the UK government the binary option of either extending the transition period or reverting to the backstop if the future trading partnership with the EU is not ready. This comes at a critical point for the Prime Minister amid rumours that the number of letters received by 1922 Committee chair, Sir Graham Brady, calling for a vote of confidence was reaching the critical number of 48 (i.e. 15% of Tory MPs). In an effort to quell the rank-and-file of her party, the Prime Minister will attend today’s 1922 Committee. 
 
While it isn’t clear at this stage what atmosphere she will be met with, numerous outlets report that the Prime Minister faced opposition at yesterday’s Cabinet meeting to her proposal that the Irish backstop entails the whole of the UK remaining in the EU customs union without a guaranteed end date. Ministers said to have been in opposition include ‘moderates’ such as Jeremy Hunt, Liz Truss and Sajid Javid. Attorney General Geoffrey Cox even reportedly likened it to being stuck in Dante’s first circle of hell. Ahead of this, Theresa May is set to go in front of the Commons at midday for the weekly Prime Minister’s Questions (PMQs), which should serve as a litmus test for what reception she can expect this evening.
 
Euro area PMIs (October)
 
Markit’s September Composite PMI saw the index ease back from August’s outturn of 54.5, to a to a four month low of 54.1. Despite the latest month’s softening, the PMI continues to point to solid growth within the Euro area. However there were clearly differing performances between sectors. Manufacturing output growth slowed to a 28 month low (53.2), whilst services activity firmed to a three month high (54.7). The performance of the overall manufacturing sector, which has slowed sharply from December 2017, can be linked to a slowdown in international trade, with new export orders effectively stagnating in September. Comments within September’s report suggest that concerns over trade wars may be having some impact on demand, whilst rising political uncertainty and higher prices were also noted. For October we expect some stabilisation in the PMI following recent declines and forecast the Composite holding steady at 54.1. Figures are due for release at 09.00 this morning.
 
Economic Forecast
 
09.00 EC Eurozone PMIs
12.00 US MBA Mortgage Applications
14.45 US PMIs
16.30 US Fed’s Bullard speaks