With the economic recovery gathering momentum, Irish banks are once again on the radar of investors, as evidenced by a detailed 60-page report on Bank of Ireland and Permanent TSB published on Thursday by Exane BNP Paribas.
In the round, it favours Bank of Ireland (outperform with a price target of 43 cent) more than PTSB (neutral with a price target of €5.30).
This shouldn’t altogether surprise given that Bank of Ireland is one of the Big Two in the Irish banking market, is only 14 per cent owned by the State compared with PTSB at 75 per cent, is back in profit at group level, and has repaid all of its bailout funds.
“Yes, Bank of Ireland looks more expensive than PTSB on a book-value basis (1.3 times versus one) but Bank of Ireland remains our favoured name,” Exane said. “Both are geared to the domestic recovery but Bank of Ireland’s asset quality is stronger and its UK presence is a near-term engine for loan growth. As a leading capital generator in the European banks sector, Bank of Ireland is fast transforming from recovery play to income story.”
Exane sees Bank of Ireland as an “excellent way to play the Irish economic recovery” as the only listed and private sector-controlled local bank that is also diversifying into the UK market. It considers PTSB as a “pure play” on the Irish recovery: “PTSB should have significant excess capital by 2018, when we expect it can begin to pay a dividend.”
Will PTSB be able to unlock this “treasure chest”? “A special dividend would be optimal for investors but we need clarity on whether regulators would allow significant capital distribution while the regulatory cycle is under way,” it said, noting 2018 was a “long way off” and a merger or acquisition might emerge before the bank distributes capital.
In a week when Irish banks were whacked by the Government for another €750 million in bank levies out to 2021 and left to ponder the administrative consequences of changes to the stamp duty regime for ATM and debit cards, Exane's note at least represented some positive news for Bank of Ireland boss Richie Boucher and his PTSB counterpart Jeremy Masding.
