09 May 2019

Permanent TSB: Q1 update shows lending momentum maintained

PTSB’s Q1 trading update shows that the bank had a 15.1% market share of new mortgage lending in the first quarter of 2019, up from 14.0% in Q118 and in line with the FY18 outturn.


New mortgage lending in Q1 was +19% y/y and personal lending grew 17% y/y, with total new lending volumes of €0.3bn as the total performing loan book was broadly flat vs end 2018. This maintains the new lending momentum the bank had last year, albeit we had hoped that it may have had an even larger market share in Q1 given the slight slippage seen from both AIBG (31.4%) and BIRG (23%) in their Q1 trading updates.


NIM at 179bps was +1bps vs FY18 and suggests new lending is not coming at the expense of margins, though planned MREL bond issuance in H219 may act as a slight headwind in this regard (INVe FY19e NIM of 175bps), albeit management retain a broadly stable NIM outlook for the rest of the year. Meanwhile, pro-forma (awaiting approval on the regulatory treatment of certain NPL disposals) fully loaded CET1 increased to 14.3% from 14.0% at end 2018, and is a bit ahead of our expectations.


All-in-all, a further positive update though unlikely to see any significant change to consensus outlook save for some slight NIM upgrades perhaps.


FBD Insurance: Insurance reforms continue to hit problems 

Irish government plans to cut personal injury awards, particularly in regard to lower whiplash claim pay-outs, have been pushed back by judges amid fears the stop-gap measures would be open to legal challenges, according to today's Irish Independent.


Judges involved in the proposed reform discussions fear that the changes to how judges interact with the Personal Injuries Assessment Board (PIAB) and its guideline award levels for less serious injuries would not stand up to a court challenge due to a perceived conflict in how judges would be involved (they would be involved in changing award levels and also in dealing with any legal challenge to these changes). This move will likely increase pressure on the Irish government to fast track the introduction of the proposed Judicial Council that could formally recalibrate and rebalance claims awards levels to bring them in line with the lower claims pay outs seen in the UK. Proposed legislation for the Judicial Council has been stuck in the Irish parliament for almost two years now.


We remain concerned that claims inflation will remain a headwind for insurance sector earnings while government reforms of the sector continue to run into difficulties.


Irish Housebuilders / REITs: Press comment

We have a piece in today’s Irish Independent newspaper on the housing market that you may find of interest. Link here:


Morrisons Weak Q120, Ocado deal pushed back

In its traditionally short Q1 IMS, Morrisons this morning reported a 0.2% LFL increase in retail revenue in Q120A (INVe 1.0%) augmented by a 2.1% increase in wholesale (INVe 3.0%) resulting in Group LFL revenue growth ex-fuel of 2.3% (INVe 4.0%). Including fuel, Morrisons reported 2.7% growth over the period (INVe 4.3%). Management noted that the retail sales performance was “robust … despite political and economic uncertainty” which is continuing to impact consumer confidence. Over the Easter period the company reported sales up 1.7% on a LFL basis.


In its FY19A results release management kept the business outlook general, noting that the company has “many sales and profit growth opportunities ahead”. This has been re-iterated with the guidance that growth will be “both meaningful and sustainable”. It was however flagged that Q220 will be against a strong comparative period in FY19 with the favourable summer weather and the World Cup.


In this short IMS, there was no mention of free cash flow generation, net debt, progress in wholesale supply sales or net incremental profit from wholesale, services, interest and online.


Separately, Morisons announced that it has agreed with Ocado that the latter will have sole use of the new Erith CFC until January 2021 to provide Ocado with extra capacity following the fire at its Andover CFC. While this means that Morrisons will not have to incur start-up or running costs for the new Erith facility, it will, we believe slow growth in Morrisons’ online offering despite assurance that the company will accelerate new store pick capacity and drive more through Ocado’s Dordon CFC.


While recording “robust” growth in Q120, it was behind our expectations. Adding management’s caution for the second quarter given the strong comparative and the announcement on the use of Ocado’s Erith facility would at first take suggest downward revisions to FY20E forecasts. 


Brexit/UK political update

It is being reported that PM May plans to have a fourth shot at getting Parliament to back a Brexit deal, with plans to take the EU Withdrawal Agreement legislation to Parliament within the next two weeks.


The PM is doing so to try and stave off the risk new MEPs would actually have to take their seats following European Parliamentary elections (in the UK) on 23 May and as she fights for her own political survival for a time longer. The PM looks to be pinning her hopes on reaching a deal with Labour, but almost all reports from these cross-party talks imply that they are getting nowhere fast amidst speculation that Labour will pull the plug any day now, bar a sudden and sizeable concession from the Conservative side of the negotiating table.


In terms of PM May’s position, the meeting of the 1922 Committee of backbench MPs held yesterday is reported as having been a gloomy and very frustrated one, with the PM having not yet laid out her plans to stand aside. However she has promised to meet the executive of the 1922 Committee next week to discuss a timetable for her departure. Even so, Mrs May’s spokesman said yesterday that she “is here to deliver Brexit in phase one and then she will make way for phase two” so, depending on the passage of Brexit legislation, those frustrations amongst many on the 1922 Committee could persist a while longer.


US-China trade negotiations

Equity markets have been weak again in Asia this morning, driven by continued concerns over US-China trade developments, with the Nikkei down 0.9% and the Shanghai Composite currently 1% lower.


The S&P 500 closed down 0.2% overnight, while futures are off another 0.6% this morning. In terms of the latest developments Chinese vice Premier Liu He is set to visit Washington today for talks. But it is unclear how much progress can be made in the next 24 hours before a threatened increase (from 10% to 25%) in US tariffs on $200bn worth of Chinese imports comes into effect at 12:01am on Friday.


Adding to concerns overnight were signs that the Chinese were prepared to respond to any US tariff increase, with the Chinese Commerce Ministry issuing a statement where they vowed they would retaliate with “necessary countermeasures”. It is not yet clear what these countermeasures are, but they will likely include increased tariffs on US goods and could escalate tensions with the US further. President Trump was also speaking overnight from Florida, where he accused the Chinese of backtracking on previously agreed parts of a draft trade agreement and trying to delay a final deal until after the US 2020 election.


RICS UK housing survey (Apr)

The RICS UK house prices net balance remained unchanged at -23% in April from a revised reading in March. This marked a marginal disappointment to consensus and Investec expectations for an outturn of -22%. Surveyors also remained downbeat in their three-month outlook for house prices, with the net balance coming in at -18% in April (albeit an improvement on March’s -27%).


Other key metrics of the RICS survey similarly suggested that activity in the UK’s residential housing market remained soft in April. New buyer enquiries continued to contract in April, with the net balance of -26% little changed from March, while the new instructions to sell net balance dropped to the lowest since the EU referendum in June 2016.


Economic releases

14:00 EZ ECB’s Lane Speaks
13:30 US Fed’s Powell Speaks
13:30 US PPI + Trade Balance + Jobless Claims
15:00 US Wholesale Inventories