Wednesday, 26th April 2017
Morning Round Up
Tax Reform – Announcement Today
Markets will be paying close attention to the White House today where Mr
Trump is expected to announce details of his proposed tax reform. An
unnamed White House official was quoted as saying that Mr Trump will call
for cutting taxes for individuals and lowering the corporate tax rate to 15%.
Speculation has also mounted that it will contain a 10% tax on offshore
earnings of US companies, which currently amounts to $2.6t. This will have
implications for major US multinationals including most of the large US tech
firm. Closer to home it may also have implications for the Irish economy which
historically has been a top destination for the capital flows. Separately, Mr
Trump’s plan to slash the corporate tax rate to 15% is likely to face opposition
from Republican fiscal hawks, most notably House Speaker Paul Ryan who
has insisted on a revenue neutral plan in the past.
UK Election – Labour Brexit Manoeuvres
The majority of political analysts agreed that the recent decision by Theresa
May to call a June election was a smart move strategically. The election will
be held before the UK gets into the nut and bolts of Brexit negotiations.
Alongside domestic issues it is also a vote by the British public on who they
believe is best suited to handle those negotiations. On the opposition side
Labour is led by Jeremy Corbyn, a hard left politician who consistently polls
badly among the British public who generally consider him inept when it
comes to economic matters. Opinion polls so far have pointed to a landslide
victory for the Tories and a decimation of the Labour vote. Yesterday there
was a conscious shift by a senior member of the Labour Party, Sir Keir
Starmer, who promised that a Labour government would guarantee the rights
of EU citizens in Britain and pursue a softer Brexit than Mrs May is intending
to. It must be remembered that 48% of the British electorate voted to remain
within the EU and Labour are hoping this move will incentivise those people
to choose Labour.
Key Upcoming Events
07/05/17 - French Election Second Round
08/06/17 - UK General Election
Market View
European markets were slightly positive yesterday
as Europe took a breather following a major rally
the previous day. US markets were up as
expectations of a Trump tax plan today grew. The
euro continues to show strength against the US
dollar moving to $1.096. US and European yields
ticked up. The VIX, a market volatility indicator,
moved back down below 10 to its lowest level in
three years as investors become more selfassured in the wake of the French election result.
Market focus today will be on the White House for
any details of Mr Trump’s tax plan.
Market Moves
Value
Dow Jones
Change
% Change
% Change
YTD
20996
232.23
1.12%
6.24%
S&P
2389
14.46
0.61%
6.69%
Nasdaq
6025
41.67
0.70%
11.93%
US Housing Market – Remains Strong
The S&P Case-Shiller Index of US home prices climbed 5.9% in February,
the quickest pace since 2014. This was above consensus expectations of
5.8% and up from 5.7% in January. The data highlights the tight supply of
homes available in the market at a time when demand has increased due to
relatively low mortgage rates and buoyant asset prices. US residential
construction is still well below the historical average and has not really
recovered to any great extent since the 2008 crash. The majority of
economists expect it to tick up for the remainder of 2017.
Nikkei
19,289
210.10
1.10%
0.92%
Hang Seng
24,558
102.42
0.42%
11.63%
Brent Oil
51.95
-0.15
-0.29%
-8.57%
WTI Oil
49.44
-0.12
-0.24%
-7.97%
Gold
1263
-0.69
-0.05%
10.10%
€/$
1.0926
0.0000
0.00%
3.89%
Case-Shiller 20 City Home Price Index
€/£
0.8524
0.0015
0.18%
-0.13%
£/$
1.2818
-0.0024
-0.19%
3.87%
Yield
C AN T O R F I TZ GE R AL D I R E L AN D L T D
Change
German 10 Year
0.38%
0.004%
UK 10 Year
1.09%
0.034%
US 10 Year
2.33%
-0.002%
Irish 10 Year
0.93%
-0.002%
Spain 10 Year
1.68%
0.001%
Italy 10 Year
2.27%
-0.001%
1
Wednesday, 26th April 2017
Daily Note
Daimler (Outperform) - Q1 results exceptionally strong, reiterate Outperform
Previous Close: €68.70
News
Daimler released full first quarter results this morning, supporting the positive pre-release of headlines numbers 2 weeks ago. The
results show an 86% year-on-year rise in EBIT, driven by strong performance in Mercedes Benz across all of its lines, and some oneoff items. EBIT for the quarter rose to €4bn from €2.15bn last year; €700m of the increase came from one-offs including a revaluation
of its stake in the mapping company Here, the sale of real estate and write-backs of previously devalued assets. As mentioned,
performance in each division was strong, with Trucks +29%, Vans +19%, Buses +66%, Financial Services +21% and Cars +60%.
Overall margin also increased to 9.8% from 7%.
Comment
Stripping out the one-offs, EBIT still rose 53% over last year, highlighting the exceptional success of Daimler’s re-vamp of its
Mercedes lines. Overall growth for FY17 had been expected to come in broadly flat; however we would expect to see forecast
upgrades in the coming weeks on the back of these exceptionally strong results. Daimler is benefitting from increased popularity
following the redesign of its marquee lines last year, aiding the company in regaining the number one position in luxury cars with the
Mercedes brand. Its closest rival BMW has launched a redesigned version of its 5 series, however any benefits usually take many
months to translate to the company’s bottom line, leaving scope for Mercedes to continue to dominate in the near term. Concerns
about lower free cash flow were eased as it rose from €300m a year ago to €1.9bn this year. Management have also guided that
operating profit growth would be “significant” this year, which compares favourably against the previous forecast of only a “slight”
increase. In our view, the results are strong enough for us to maintain out Outperform rating.
David Donnelly, CFA | Senior Investment Analyst
Glanbia (Outperform) - Q1/17 results in line with expectations
Previous Close: €18.75
News
Glanbia reported Q1/17 Interim Management Statement (IMS) broadly in line with expectations. However, the decline in volume
growth with its GPN division is a concern. Its share price opened lower as a strengthen EURUSD in recent days is now acting as a
headwind to the stock, which had previously been a tailwind in recent years. Management said “Glanbia delivered good revenue
growth in the first three months of 2017. Glanbia Nutritionals had a good performance and was the main driver of growth. Glanbia
Performance Nutrition delivered in line with expectations”. Management remains positive on the outlook for 2017, and it reiterated full
year guidance of 7% - 10% EPS for 2017, which is more heavily weighted towards the second half of 2017.
Comment
During Q1/17 it completed the acquisition of Body & Fit, Amazing Grass, and has signed a binding legal agreements to sell 60% of
Dairy Ireland to Glanbia Co-Op, which is to be voted on in May 2017 by existing shareholders. It has also committed to expanding its
cheese and whey production capacity through its JV partners at its Michigan site in the us. Its net debt position rose by €297m to
€735m as a results during the quarter and management expects €90m - €100m capex in 2017. Glanbia Performance Nutritional
(GPN) performed in line with management expectations and management expects mid-single branded volume growth in the year and
mid-teens EBITA margins, however marginally behind 2016. Overall revenue decreased marginally by 0.2%, with pricing increasing
0.3%, acquisitions contributing 2.6% while volumes fell 3.1% which is modestly concerning and accounts for the share price
weakening at the open this morning. Glanbia Nutritionals (GN) saw revenue increase 10.3%, with pricing increases accounting for
7.6% of the increase as a result of strong dairy markets due to increasing cheese prices, while volume growth accounted for the
remaining 2.7%. Management said the outlook for GN for 2017 looks positive. Dairy Ireland delivered a satisfactory performance as it
contends with higher raw material prices. We suggested taking tactical profits last week for active trading clients as Glanbia’s share
price re-tested all-time highs. A break of resistance of EURUSD above $1.0830 this week is a near term headwind for the stock. W e
remains positive on the outlook for Glanbia and it remains in our Core Portfolio. For active trading clients we see the next buy zone
coming at €17.50.
Stephen Hall, CFA | Investment Analyst
C AN T O R F I TZ GE R AL D I R E L AN D L T D
2
Daily Note
CRH (Outperform) - First quarter trading in line with expectations
Wednesday, 26th April 2017
Previous Close: €33.45
News
CRH released a trading update this morning for the first quarter in 2017. Management stated that it was a satisfactory start to 2017
with first quarter sales up 4% compared with a strong first quarter of 2016. Group EBITDA for the first half of the year is expected to
be ahead of last year which came in at €1.12bn. Management also stated that based on current momentum, further progress is
anticipated for the second half of the year. Management expects modest improvement in Europe for the remainder of 2017 while the
US is also expected to remain buoyant helped by a strong residential construction market and the infrastructure FAST Act whic h
should lead to an improvement in volumes.
Comment
We had highlighted in previous notes that the mild weather in the US in the first half of 2016 would make it difficult for CRH to match
the sales volumes in that region in the first quarter of 2017. Like for like sales in the Americas were actually in line with last year, a
positive result considering the favourable conditions in 2016. In Europe LFL sales were up 6%, supported by stabilising trends in
certain key markets and a pickup in the European recovery. CRH had an initial rally in the wake of the election of Mr Trump as
speculation mounted regarding a potential infrastructure plan. As this has become an increasingly distant likelihood in the near term,
CRH has rerated and is now close to average sector valuation with an estimated 2017 P/E of 22.4x, which is close to its 10 year
average of 21.6x and below the sector average of 25.7x. We believe that the majority of this Trump infrastructure premium has now
come out of the share price which improves the investment case from a fundamental perspective. Deleveraging and divestment of
assets has happened faster than expected which we believe makes the likelihood of continuing acquisitions even greater. At the last
results release it was confirmed that net debt/EBITDA reduced from 3.0x to 1.7x. This compares to an average of 1.92x for CRH’s
peers. The US housing market and European recovery should continue to remain supportive of cement volumes which have ticked up
in the first half of 2017. We maintain our Outperform.
Will Heffernan | Investment Analyst
C AN T O R F I TZ GE R AL D I R E L AN D L T D
3
Wednesday, 26th April 2017
Daily Note
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C AN T O R F I TZ GE R AL D I R E L AN D L T D
4
Wednesday, 26th April 2017
Daily Note
Regulatory Information
Issuer Descriptions: (Source: Bloomberg)
Daimler: Daimler AG develops, manufactures, distributes, and sells a wide range of automotive products, mainly passenger cars, trucks, vans, and
buses
Glanbia: Glanbia plc is an international dairy, consumer foods, and nutritional products company. The Company conducts operations primarily in Ireland, the United Kingdom, and the United States.
CRH: CRH public limited company is a global building materials group. The Company manufactures and distributes a range of construction products
such as heavy materials and elements to construct the frame and value-added exterior products
Historical Recommendation
Daimler: We have added Daimler to our core portfolio on the 01/01/16, with a recommendation of Outperform
Glanbia: We have been positive on Glanbia’s outlook since 13/03/13 and no changes have been made to the recommendation since then.
CRH: We have added CRH to our core portfolio on the 01/01/16, with a recommendation of Outperform
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