Davy Morning Equity Briefing

Nov 11, 2019

Market Comment

Multinational sector still driving Ireland’s exceptional GDP growth

Not surprisingly, the Central Statistics Office’s (CSO) breakdown of Ireland’s 6% GDP growth in Q2 2019 showed a buoyant multinational sector (+12%). Technology, business services and pharmaceuticals are boosting GDP growth, helped by foreign direct investment (FDI) and intellectual property (IP) asset transfers. In contrast, indigenous sectors (+3.2%) have slowed, perhaps due to Brexit uncertainty. Still, the breakdown highlights the upside risks to our 4% GDP forecast for 2020, which would require the multinational sector to slow, of which there is no sign.

AerCap Holdings

Q3 results: demonstrating positive operating leverage

AerCap (AER) has issued a strong set of Q3 results with diluted EPS of $2.01, 5% ahead of consensus ($1.91) and 6% above our estimates (Davy: $1.90). The beat was driven by another strong cost performance where depreciation continues to inch down in-line with the younger fleet and SG&A demonstrates positive operating leverage. A new $200m share buyback programme will be supportive to the share and is supported by firming revenue quality and visibility via 97% of lease rentals through 2022 already being contracted.

Irish banks

Mortgage market reflection following Q3 developments

Mortgage market lending continues to grow and is on track to meet our 11% growth forecast for 2019 despite Brexit uncertainty and weakening house price growth. The market recovery remains in its infancy and its continued recovery will help reinforce balance sheet growth. Against this, the market remains competitive, but pricing actions have become more targeted. We expect modest attrition, but not significant erosion, of back-book mortgage rates..