Good Afternoon ,
A dispiriting day to be honest , yes we had been big fans of Irish Life and had been gamely marketing the story with a Eur6.00 price target and had been more bullish with the prospective opportunities as the share price fell back recently. So i am somewhat disappointed with the Irish Life IMS statement of this morning which revealed two issues ,the first being the solvency capital position in the life business relating to property hitting the net worth and the capital deficit in the bank given the increase in loan loss provisions.
I am disappointed with the jump in loan loss provision guidance in the commercial loan book , it had not been mentioned as an issue before so the management team manage to find a banana skin which has unnerved the market. The question of why now for the uplift to the loan loss guidance is relevant especially as it pertains to commercial property values since June or indeed when the company last spoke to the market in August.
Irish Life appear to have decided to move to a more drastic approach to commercial property valuation than their peers and relative to what is in expectations...which is worrying but we will see tomorrow what if anything AIB add to the debate with their disclosures tomorrow. The llp rate on the Commercial Real Estate book in H1 was c. 275 bps, they are implying c. 700 bps in h2 and by contrast BoI was 97 bps on investment in F2010 H1 to end sept across
Having debated the issues though we do still believe there is significant upside to the stock prices but the surprise of today muddies these waters. We have calculated a fair value per share of 5.95 so with the price closing today at 3.88 there is significant potential upside to our fair value.
Needless to say the negativity re Irish life spread to both AIB and Bank of Ireland who were each down by more than -3% today.
Kingspan is another stock worth noting here as we confirm our new forecast for this year and next. We have finalised 24.5c up from 22.3c for 2009 and 21c from 20c for 2010 with our expectation of a the first up year being 2011. It is significant in my view that we have passed the point of the first upgrades. We have a hold recommendation onthe stock and the analyst argues that the current price is appropriate given the point inthe cyle and discounting back from the mid cycle numbers to today. This approach is very fair and conservative and valid but I suspect that when we get to the mid cycle times , that the world could have moved on and that this company in particular may have moved to pay down debt , re-institute the dividend or do a sizeable acquisition. THe bear view is that it is appropriate to have a hold if the owrld goes pearshaped. I think it is a buy here , or close to here and would be building positions with increasing confidence from this point on.
At 5pm , Wall Street has given back 0.25% from its recent highs , Europe was down about -0.7% lower , London was down -0.7% and Dublin remaining the weakest link was down -1.75% ....
THe Irish government raised a further 1bn in a bond issue today and ha effectively started to prefund next years exchequer borrowing requirements .
Have a good evening . It was not a great day....
Liam
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Liam Boggan
Merrion Stockbrokers
Tel.: 353-1-2404171
Mob:353-87-2313505
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