US broker sees Cairn’s earnings growing 40% a year to 2024

Bank of America has raised its price target on Cairn Homes' shares, saying it expects the homebuilder's earnings per share to rise at a compound annual rate of 40 per cent between this year and 2024 as it ramps up construction in a market where Irish housing demand outstrips supply.

Analysts at the investment bank, led by Arnaud Lehmann, raised their price target on the stock to £1.25 (€1.45) in a report, titled the Tiger is Back and Roaring. The target implies 29 per cent upside from Cairn's closing price in London on Monday.

Cairn, which floated on the stock market in 2015, said earlier this month that its order book has grown from €214 million in January to a current high for the business of €655 million and that it is aiming to deliver 2,550 homes between this year and next.

“Cairn Homes emerged strongly after the long Irish lockdown and is now back on track to deliver on its completion plans. In the meantime, the group is generating higher selling prices and margins, supported by a tight supply and delivery of internal efficiencies,” said the Bank of America report, issued to clients on Wednesday.

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Housing crisis

Cairn Homes chief executive Michael Stanley used the announcement of interim results on September 9th to say that the Central Bank's mortgage-to-income (LTI) lending rules and an "irrational" fear of apartment developments among the Irish public were exacerbating the country's housing crisis.

He subsequently wrote to the Central Bank, which is reviewing its rules, to say that the "blunt" LTI restriction should be replaced with a debt-servicing ratio, which looks at monthly mortgage payments relative to net income.

Mr Stanley said in the letter that there was “a lot of misinformation in the public domain” that high land costs and profits within the house-building industry were behind the State’s housing crisis. He said Cairn’s average housing plot cost was €30,000, while its average net profit margin in the past five years was 4.9 per cent and average return on shareholders’ equity (RoE) was 2.7 per cent.

Still, Bank of America see the group’s RoE rising to 5 per cent next year before doubling again over the following two years, to more than 10 per cent.