AN INVESTOR'S VIEW - CROESUS:ONE OF THE Irish market's most established mid-cap stocks, DCC, reported full-year results to end-March 2008 during the week. DCC began life in the high inflation/low growth era of the 1970s as a venture capital company. Despite the difficult economic environment, it succeeded in developing a balanced and diverse range of businesses.

Going public enabled the company to move into a new stage of development, and it has maintained an enviable record of unbroken revenue and profits growth as a public company.

The high-profile insider dealing case with Fyffes has undoubtedly served to somewhat tarnish DCC's image. However, the distractions that this case must have caused the board and senior management does not seem to have had any adverse impact on the company's operational performance.

Reported earnings per share (EPS) rose by 3.2 per cent to €165.1 million and this was about 2 per cent higher than most brokers' forecasts. The dividend was increased by 15 per cent to 56.7cent.

In fact growth in the dividend is in line with the growth in underlying EPS, which excludes Manor Park Homes. DCC had a 50 per cent stake in Manor Park, which it successfully sold after a long period of negotiation. DCC began the sale process as the building boom was beginning to turn downwards. The process proved to be very protracted but it was eventually completed before the severity of the contraction in Irish house building had become apparent.

This sale is now looking to have been a very astute move with no end yet in sight to the recession in the residential construction sector.

DCC has five main operating divisions (fiscal year 2008 operating profits in brackets): energy (€74.3 million); information technology (Sercom €40.1 million); healthcare (€23.4 million); food beverage €15.3 million); environmental (€14 million). The fastest rate of profit growth was achieved in environmental where the UK operations William Tracey (acquired in May 2006) and Wastecycle Group (acquired in November 2006) traded strongly.

In the important energy division, profits grew by 25 per cent as the impact of higher fuel costs were passed on to customers in most cases. Sercom grew operating profits by 22.9 per cent with healthcare and food beverage profits rising by just 4.2 per cent and 1.6 per cent respectively.

Underlying profits are expected to continue to grow in the 12-15 per cent range in the coming year in constant currency terms. However, with Britain accounting for over half of profits the weak sterling will result in much lower profits growth in euro terms.

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Bank of Ireland also delivered its results for the fiscal year to end March 2008 on Wednesday, reporting an increase in EPS of 4 per cent that was broadly in line with market expectations. For the year, the dividend per share increased to 63.6 cent, a rise of just 5 per cent compared with market expectations of about 10 per cent. This marked an appreciable slowdown from the rate of growth in recent years.

In normal conditions, such a step down in the rate of dividend growth would be viewed very negatively by shareholders. However, in the current environment where preserving capital strength is paramount, a slowing in dividend growth should be welcomed by investors.

Of course, with EPS growth slowing to just 4 per cent the slower rate of dividend growth merely reflects current harsh realities. With earnings likely to decline over the next two years, shareholders can expect minimal or no growth in dividends in the near term.

On several key metrics, the bank performed very well. The tight rein on costs was reflected in a cost/income ratio of 3 percentage points to 51 per cent. The funding position has improved over the past year as deposits grew by 19 per cent or 27 per cent on a constant currency basis, with the result that wholesale funding was 41 per cent of the overall balance sheet at March 2008 compared with 46 per cent at September 2007.

According to the bank, asset quality remains strong with the impairment loss charge rising from an historically low level of nine basis points to 17 basis points. On capital strength, the core equity ratio stood at 5.7 per cent, after deducting the cost of the proposed dividend. The company is targeting a core equity ratio of 5.5 per cent to 6.5 per cent "through a combination of retained earnings and capital management initiatives".

All in all it is difficult to find fault with the performance of Bank of Ireland on the basis of these results so that the fall in the share price on Wednesday can only be due to investors' intensifying worries about the future direction of the Irish and UK economies.