Davy Morning Equity Briefing

Jan 24, 2020

Market Comment

We won’t diverge just for the sake of it

Speaking in Davos yesterday, a softer tone from Chancellor of the Exchequer Sajid Javid suggested that there is room for manoeuvre to secure a trade deal on goods and that the UK will not diverge from EU regulatory rules unless it is “in the interests of British business”. However, EU/UK trade negotiations will not be plain sailing, with thorny issues such as fishing rights and migration remaining.

Saint-Gobain Group

Asbestos and activism

Saint-Gobain has moved to resolve its legacy asbestos issues once and for all. An affiliate of the group’s CertainTeed business has filed for Chapter 11 bankruptcy in an effort to settle all current and future claims. With no end in sight to new claims, filing for Chapter 11 will stay litigation and should sharply reduce the group’s legal costs (c.€88m in 2019). Meanwhile, in a Financial Times interview, the CEO has talked in detail about the positive progress of the group’s reorganisation. The article also touched on potential activist interest, speculation of which has surrounded the stock for some time.

Givaudan

Growth headwinds persist through Q4

Givaudan’s Q4 revenue out-turn has missed expectations and points to slowing momentum as pricing-led organic growth begins to taper. Weakness in North America Flavours has now persisted for three quarters in a row (dairy-led), while Fragrance like-for-likes showed a marked deceleration. We believe the current revenue backdrop warrants vigilance given equity multiples.