Key Themes this Week. Currencies Focus. Major Markets Last Week. Monday, 6 th February 2017

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1 Monday, 6 th February 2017 Key Themes this Week UK Economy - Trouble Ahead? We have long maintained that the UK economy is in the eye of the Brexit storm, and that economic data is benefitting from a short term boost as a result of the weakness in sterling. However, some data points have begun to weaken; Services PMI fell to a three month low of 54.5 down from 56.2 in December. As input costs rise, the extra cost will be pushed through to consumers, increasing inflation levels. At the same time, sterling depreciation is also likely to impact consumer spending, as items on shelves become increasingly expensive. Eurozone - Core & Periphery Broad based growth across the Eurozone has improved in recent months; unemployment continues to trend down and inflation data has started to improve, much to the relief of the ECB which is set to maintain its Quantitative Easing programme until at least March That said, there remains a disparity in improvement between Eurozone nations, most notably between core economies, like Germany, while some peripheral economies continue to struggle with structural, fiscal and social problems. For example Spanish unemployment continues to be stubbornly high above 18% while Germany enjoys record unemployment of 5.9%. Issues of this nature are set to be key areas of focus in Europe s many elections this year given the rise of populism and the growing chorus of anti-european voices coming from Europe s political parties at the edges of the political spectrum. Major Markets Last Week Value Change % Move Dow % S&P % Nasdaq % UK Index % DAX % ISEQ % Nikkei 18, % H.Seng 23, % STOXX % Brent Oil % Crude Oil % Gold % Currencies Focus We maintain our view that c.$1.05 against the euro is broadly reflective of the likely course of central bank policy in the US and Europe over the coming months. We expect the Fed will push through another rate hike within the first 6 months of the year, and we see potential for a further 1-2 hikes in the latter stages of 2017, depending on the success of the Trump Administration s attempts to push through fiscal stimulus. Meanwhile, we expect the ECB to make no changes to its monetary policy this year. President Trump has been exceptionally vocal on the strength of the US dollar, in a bid to weaken the currency; however this policy will be at odds with his other stated goals of increasing interest rates in the US, and incentivising US companies to repatriate cash, two elements which should see the dollar strengthen. With regard to sterling, as noted above we expect economic data in the UK to weaken following the initiation of Article 50 negotiations, as the complexity of negotiations is recognised, and the economic uncertainty which overhangs the UK begins to impact inward investment. In our view, sterling should weaken back to c against the euro as this realisation takes hold. Silver % Copper % CRB Index % Euro/USD % Euro/GBP % GBP/USD % Value Change German 10 Year UK 10 Year US 10 Year Irish 10 Year Spain 10 Year Italy 10 Year BoE ECB Fed

2 Weekly Trader Monday, 6th February 2016 S&P500 Index. Daily Chart. October 2015 to present. Including 50DMA/200DMA. Primary resistance for the index is at the all-time high from January at Support levels are 2233 and There were three significant price pull backs post the January 2016 decline these averaged -6%. Momentum indicators remain a concern at current levels while volatility readings remain close to multi decade lows. Equally, market breadth remains weak with the move higher being led by financials. We remain cautious on US equities in the short-term. EUROSTOXX 50 Index. Daily Chart. October 2015 to present. Including 50DMA. Primary resistance is 3342 with support levels at 3230 and The European index completed a broad basing pattern in December Momentum remains a concern. We prefer Europe over the US from a technical perspective. Also, on a relative valuation basis European equities look more attractive than their US counterparts with support for the market from positive economic data and the continuing monetary policy support from the ECB NASDAQ Composite Index. Daily Chart. October 2015 to present. Including the 50DMA. The technology heavy NASDAQ remains pressed up against the top of its twelve month upward sloping trading range. The index has returned +5.3% YTD v s the S&P500 at +2.6%. The index closed at an all-time high on Friday driven by better-than-expected results from Apple. Despite mixed results from the tech sector and our overall caution on US equities, we see opportunities in selected tech names such as Facebook, PayPal, Alphabet and Amazon on any short-term weakness.

3 Ryanair - Yield environment very difficult, excellent performance on costs Closing Price: Stephen Hall, CFA Investment Analyst Key Metrics 2017e 2018e 2019e Revenue ( m) 6,692 7,034 7M705 EPS ( ) P/E 13.9x 12.3x 11.5x Div Yield 0.0% 0.0% 0.0% Share Price Return 1 Mth 3 Mth YTD Ryanair -0.87% 17.2% 0.65% Source: Bloomberg Ryanair reported Q3/17 Net Income of 95m 8% down on the previous year and 6m behind consensus estimates of 101m. The pricing environment remains extremely difficult with yields down 17% in Q3/17 to 33 per passenger ( 40 in Q3/16) with management citing Brexit risks and above average capacity growth weighing on yields. Despite this yield pressure, management maintained FY17 net income guidance of 1.3bn bn for FY17, market estimates are 1.33bn, basically right at the mid-point of management s guidance. This is possible due to Ryanair s hugely impressive performance on costs which fell 12% YoY in Q3/17, excluding fuel benefits, costs fell 6% YoY. The airline continues to take delivery of more efficient planes, negotiate new growth/ volume deals with primary and secondary airports. It recently negotiated new engine maintenance deals, and has lower booking system costs than its competitors. Its 5 year pay and productivity deals in place with staff and pilots provides visibility on costs over the near term horizon. It has roughly completed 90% of its ongoing 550m share buyback programme. Membership of MyRyanair is now mandatory, meaning it can better tailor deals towards individual customers as a result to drive growth. Overall, the negative yield environment might hit its share price in the near term, however Ryanair impressive performance on costs is protecting profitability. Ultimately, taking a longer term outlook, its widening competitive advantage on costs, enables it to have a competitive advantage on fares which in turn should allow it to capture market share off its competitors. Ryanair trades at just 12.2x FY18 which we view as attractive. Smurfit Kappa - FY16 Results Preview Closing Price: Stephen Hall, CFA Investment Analyst Key Metrics 2016e 2017e 2018e Revenue ( mn) 8,242 8,447 8,611 EPS ( ) P/E 12.6x 12.1x 11.5x Div Yield 2.9% 3.1% 3.3% Share Price Return 1 Mth 3 Mth YTD Smurfit 7.1% 26.7% Source: Bloomberg Smurfit is due to release FY16 results this Wednesday the 8th February. The market is anticipating 1.6% revenue growth to 8.24bn, EBITDA growth of 3.4% to 1.22bn and adjusted net income growth of 5.6% to 468m, which translates into an EPS of Smurfit has been the best performing stock in our Core Portfolio in 2017, +14% ytd. The market has begun to recognise its valuation attractiveness relative to its two closest peers DS Smith and Mondi. In November 2016, this valuation discount was roughly 22%, however over the past 2 months, it has narrowed to just 12% helped by its recent inclusion in December 2016 to the UK premier stock index. Over the course of the coming months, we expect this valuation discount to close further due to the company s strong free cash flow generating ability and its strong asset base. It recently announced a 60/tonne price increase in brown and white Kraftliner from 1 st of March 2017 in European could lead to earnings upgrades for 2017 which has boosted sentiment and should offset rising costs. Smurfit s management maintains a tight focus on cost controls and made several EBTIDA enhancing capex investments in 2016 to support growth. The stock is now trading at 12.6x FY17e earnings, and offers and attractive dividend yield of 3.0% for FY17e compared to the ISEQ at 1.9%. Despite the strong start to 2017, we are happy to hold the stock of results this Wednesday and view its consensus 12 month target price of 27 as an achievable target in

4 Glaxosmithkline - Earnings Preview Closing Price: GBp David Donnelly, CFA Senior Investment Analyst Key Metrics 2016e 2017e 2018e Revenue ( bn) EPS ( ) P/E Div Yield 5.16% 5.17% 5.23% GlaxoSmithKline is to report Q4 numbers on Wednesday, and the market is expecting EPS on 0.25 and revenue of 7.485bn. We expect the company to have benefitted from a strong FX tailwind given the weakness in sterling over the 4th quarter and the high proportion of sales that stem from outside of the UK. Attention will be on the impact of generics on key respiratory drugs, and Glaxo s ability to maintain high levels of growth in its HIV treatment business. Glaxo s portfolio was substantially improved following the Novartis deal, as its vaccines division was bolstered and the consumer health unit expanded. We continue to like the stable dividend Glaxo provides and the corresponding expected yield of 5.2%. Greencore - Strong recovery post impressive Q1/17 results Closing Price: GBp 252 Stephen Hall, CFA Investment Analyst Share Price Return 1 Mth 3 Mth YTD GSK -2.0% -3.2% -0.9% Source: Bloomberg Key Metrics 2017e 2018e 2019e Revenue ( mn) 2,322 2,715 2,881 EPS ( ) P/E 15.6x 14.1x 12.8x Div Yield 2.3% 2.5% 2.8% Share Price Return 1 Mth 3 Mth YTD Greencore 4.15% -5.3% 1.91% Source: Bloomberg The market responded very favourably to Greencore s Q1/17 results which were released on 31 st January It reported an impressive increase in revenue growth year-on-year (YoY) driven by underlying organic volume growth in all its key Food-To-Go (FTG) categories it operates in and new contract wins, as it strengthened exclusive supply contract with key customers M&S and the Co-Op. On a reported basis, Group revenues grew 17.1% YoY to 417m and 9.1% on a constant currency basis. Concerns for investors in recent weeks have included increases in raw material prices (dairy, protein), packaging prices, labour costs in the UK and US, and a weakening Pound which management acknowledged would increase in FY17. However, it anticipates that the combination of pass through supply contracts, supply chain efficiencies, purchasing and pricing initiatives will mitigate these headwinds protecting operating margins in FY17. Management also addressed the company s ability to attract and retain labour following the UK s decision to leave the European Union in June The company has hired more permanent staff and reduce its exposure to agency workers which has lower staff turnover rates, and improved productivity and morale among its workforce as a result. Management s ability to address previous investor concerns has strengthened its credibility among the investment community in our opinion. The announcement of 2 new Capital Markets Days in March and June 2017, will provide an opportunity to communicate the investment case among investors and could potential lead to a positive valuation rerating the stock. We should get a more in-depth over view of the Peacock Foods integration when it releases H1/17 results in May We are happy to pick up Greencore at current market prices despite the 12% rally post Q1/17 results in 4 trading sessions. The 12 month consensus target price is GBp , which offers investors 22.6% upside potential off current market prices if achieved. The stock re-rated from a low of 13.6x FY17e earnings prior its Q1/17 earnings release to 15.6x post the results, however still trades at an unjustifiable 20% discount to the broader Euro Stoxx 600 Food and Beverage Index at 19.4x earnings. 4

5 Tech Space - Q4 results strong but investment rises Closing Price: $ David Donnelly, CFA Senior Investment Analyst Key Metrics 2017e 2018e 2019e Revenue ($Bn) EPS ($) EV/EBITDA Div Yield 0.00% 0.00% 0.00% Share Price Return 1 Mth 3 Mth YTD Facebook 12% -0.31% 13.8% Source: Bloomberg Facebook s earnings were substantially ahead of expectations, as revenue beat by 3.4%, while EBITDA beat by 7.8%. The driver of the exceptional results was again an increase in advertising revenue, which rose 53% YoY, and in particular advertising for mobile devices which rose 61%. User growth also continued at pace, as Monthly Active Users (MAUs) rose 20.7% YoY to 1.74 billion. More importantly however was the rise in the number of users on the platform on a daily basis, which increased to 1.23 billion. We continue to believe the shares are significantly undervalued given Facebook s dominant position in the rapidly growing online advertising space. Consumers are spending an increasing amount of time online, particularly through mobile devices, and the growth in daily active users highlights the popularity of Facebook s platform. As such, we expect advertising budgets to continue to switch from traditional mediums like TV and Print. We reiterate our Outperform rating on Facebook. Despite Amazon beating EPS estimates by 13.2% and recording 22.4% growth in revenue YoY, the stock declined 4.15% in afterhours trading following results. The driver of the decline was management s guidance that investment would increase dramatically this year in order to reduce delivery times and make a greater push into the fledgling e-commerce market of India among other areas. We believe that the sell off on the back of guidance is an over-reaction and short sighted. We see little issue in companies in high growth areas investing in expansion of their business, particularly when they generate ample free cash flow to cover such investment, as Amazon does. The areas of planned investment seem sensible to us and we view them as critical steps for Amazon to reach peak scale; by doing so, barriers to entry for would-be competitors become too high. We would be happy to pick up the stock into weakness at lower levels viewing the current valuation of c.18.2x FY17e EV/EBITDA as inexpensive given the 37% EBITDA growth expected this year. Alphabet/Google reported net revenue of $21.2bn and EBITDA of $10.17bn, coming in 4.5% and 3.8% ahead of expectations respectively. The drivers of earnings were again robust performance by mobile search and YouTube, which boosted revenue from Google website by 20% YoY. We reiterate our Outperform rating on Alphabet, and see it as a primary beneficiary of the continued transition of advertising dollars away from traditional sources onto online given its number one position in the space. PayPal also released a strong set of quarterly numbers, which met market expectations. Revenue came in at $2.98bn (+17% YoY) and EPS came in at $0.42. Critically, key metrics showing user growth were exceptionally strong. Total Payment Value rose 25% YoY, driven by higher than expected growth in user numbers, which rose 10%, and an increase in the numbers of transactions per user, which increased 13%. Guidance for 2017 was also raised, and is now in line with consensus. The company has expanded into a full service payment provider by looking at the variety of reasons people need to transfer money between one another and creating a presence in that space. For example, users can now have their salary paid into a PayPal account, repay loans and credit cards through PayPal, utilise Tap-and-Go payments at check-outs, and conduct online shopping, all utilising PayPal products and their Pay- 5

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7 From the News - Monday Headlines France Le Pen promises crackdown on immigration and globalization as she launches campaign Ryanair 3rd quarter profits fall 8% to 95m Germany Industry orders rises at strongest pace in 30 months Glanbia Invests 181 million in two specialist food acquistions Dublin Office construction jumps tenfold on completion levels in 2015 Brexit British business leaders say Brexit starting to have negative effects Cantor in The Media CNBC Online: Clear concern in markets on fiscal policy & tax reform - Shaun Matthews CIO Today: Apple reversed its iphone Slump. But what s next? - Colin Gillis Business Insider: Stocks and dollar rebound ahead of Fed - Justin Lederer Newstalk: Facebook and Cantor Strategy - Alan Breen RTE News: Snapchat IPO - David Donnelly Today FM Sunday Business Show: Snapchat - Stephen Hall 7

8 This Weeks Market Events The Week Ahead Monday Tuesday Wednesday Thursday Friday Corporate Corporate Corporate Corporate Corporate Ryanair DCC BP Hibernia REIT Rio Tinto Tullow Oil Smurfit Kappa Hargreaves Lansdown Coca Cola Twitter Total Kering Economic Economic Economic Economic Economic GE Factory Orders CH Caixin China PMI GE Ind Prod US Consumer Credit N/A US Initial Jobless UK Ind Prod US U. of Mich Sentiment Upcoming Events 13/02/2017 N/A 14/02/2017 Rolls Royce. AIG. 15/02/2017 IRES REIT. Danone. Cisco. 16/02/2017 Imperial Tobacco. Nestle. Schneider Electric. 17/02/2017 Kingspan. Allianz. 13/02/ /02/2017 CH CPI. GE WDA. GE CPI. UK CPI. EC ZEW 15/02/2017 US Empire Manf. US CPI. US Cap Utilisation. 16/02/2017 US Housing Starts. US Phil Fed Business Out. 17/02/2017 UK Retail Sales Ex Auto. 8

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10 Regulatory Information Issuer Descriptions: (Source: Bloomberg) GlaxoSmithKline: GlaxoSmithKline PLC is a research-based pharmaceutical company. Smurfit Kappa Group PLC manufactures containerboards, solid boards, graphic boards, corrugated and solid board packaging products Facebook: Facebook Inc. operates a social networking website. Ryanair: Ryanair Holdings plc provides low fare passenger airline services to destinations in Europe. Greencore: Greencore Group plc manufactures and distributes a diverse range of primary foods and related products, food ingredients and prepared foods to the consumer and industrial sectors. PayPal: PayPal Holdings Inc operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants. The company offers online payment solutions. PayPal Holdings serves customers worldwide Alphabet: Alphabet, Inc. operates as a holding company. The Company, through its subsidiaries, provides web-based search, advertisements, maps, software applications, mobile operating systems, consumer content, enterprise solutions, commerce, and hardware products. Amazon: Amazon.com, Inc. is an online retailer that offers a wide range of products. The Company's products include books, music, videotapes, computers, electronics, home and garden, and numerous other products. Amazon offers personalized shopping services, Web-based credit card payment, and direct shipping to customers. Historical Record of recommendation GlaxoSmithKline: We have been positive on GSK s outlook since 04/02/13 and no changes have been made to the recommendation since then. Smurfit Kappa Group: We have added Smurfit Kappa to our core portfolio on the 01/01/2016 and we have upgraded our recommendation from Market Perform to Outperform Facebook: We have had an outperform rating on Facebook since the 20/02/14 and no changes have been made since then Ryanair: Ryanair was added to the Core Portfolio at inception in and have had an Outperform recommendation since then. PayPal: We added PayPal to our Core Portfolio on the 20/07/15 and have an Outperform outlook on the stock. Greencore: We have upgraded our recommendation for Greencore, to Outperform from Not Rated, as of 25/11/2015. Alphabet: Google which is now Alphabet was added to the Core Portfolio on 07/01/13 and no changes have been made to the recommendation since its inclusion. Amazon: We have an Outperform recommendation for Amazon since 26/07/13, and no changes have been made since then. 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