Davy Morning Equity Briefing
Oct 22, 2020
In conversation with Paschal Donohoe
Ireland’s Minister for Finance and President of the Eurogroup Paschal Donohue had a wide-ranging interview with Bernard Byrne, Davy’s Head of Capital Markets (click here for full interview), yesterday. The key take-outs were: (1) fiscal support will continue in 2021 but a deficit reduction plan will be provided in H1; (2) Brexit resolution is possible; and (3) the banks have been and remain in a position to respond promptly to the pandemic.
Recovery gains pace
Travis Perkins (TPK) has announced a 3.9% year-on-year (yoy) increase in underlying revenues in Q3 which includes organic growth of 8% yoy in September. The update underlines the extent to which trading has recovered and confirms this has been led by the RMI sector, with new housing and commercial slower to pick up. Full year guidance suggests trading profit of £240-260m with the current company consensus at £239m. Hence there should be a positive revision to estimates and this will help sentiment towards the stock (and peers).
Large Q3 loss; pulling back capacity but liquidity in line
IAG’s update outlines a miss on Q3 (-€1.3bn loss pre-exceptionals) and a pull-back of capacity in Q4 2020 to no more than 30% compared to 2019. As a result, IAG no longer expects to reach breakeven in terms of net cash flows from operating activities during Q4. However, liquidity remains strong post the rights issue at €9.3bn. A kick-start on the transatlantic with easing of quarantines/increased testing remains key. Q3 results will be released on October 30th.
Licence reversion complete
The news that the regulatory work required to return the equity position in Licence 1/11 to 80% held by Providence and 20% by Lansdowne is important as the current farm-out process could not complete without the equity required being in place.
Totally committed to reducing debt
The news that the Ugandan government had signed off on tax arrangements, licence transfer and change of operatorship effectively brings to a successful conclusion the sale of Tullow’s Ugandan assets to Total. This is an important first step in the process of achieving $1bn asset sales to reduce financial leverage in the group. All things equal, it points to a close of year net debt position of c.$2.4bn.