The Irish Times Investor's Digest.
Dividend cuts may cause concern
A spate of high-profile dividend cuts in Britain recently will be of concern to people looking for income from share investments.
Although no major Irish company has announced dividend cuts and AIB increased its dividend despite the $691 million (€790 million) fraud at Allfirst in the US, a number of FTSE companies have cut payouts to shareholders. Royal & Sun Alliance, Reuters and ICI have cut dividends by up to a half, while CGNU - operating under the Hibernian brand in the Irish market - has signalled its plan to reduce this year's dividend by almost 40 per cent.
Dividend growth at British companies has been slowing in recent years and, with new pressures on companies, some experts expect further falls. Analysts say some more companies will announce cuts but they are forecasting overall average dividend growth of about 6 per cent this year with well-capitalised companies and those with strong cashflows in a position to increase payouts.
Among the negative pressures is the possible impact on dividend payouts from new accounting standard FRS 17, under which companies operating defined-benefit pension schemes for employees have to put any annual pension fund deficits through their balance sheets.
IAWS gets 'buy' from Merrion
Merrion Stockbrokers has put a "buy" recommendation on IAWS shares, currently trading around €8.80. Analyst Niamh Brodie considers the shares cheap at around 15 times forecast 2003 earnings given their defensive characteristics. Demographic trends underpin growth in the premium bread market, while the company has a track record of efficiency and managing growth, she says.
Applying a rating in line with its current growth rate - 20 times full year 2003 earnings - she put a short-term price target of €10.90 on the shares. Using discounted cashflow analysis, she found IAWS could give shareholders an annual return of 17 per cent over the next 10 years.
Balance sheets could be hotel key
The European hotel sector is undervalued on a 12-month view with a weighted average price/earnings ratio for 2003 of 13.2 times against a historic one-year-out average of 14.5 times, according to brokers Merrill Lynch.
Most hotel shares have bounced back since September 11th but the brokers feel the next phase will involve greater distinction between the weak and the strong in the market.
While investors could opt to back the more operationally geared shares that offer relative safety in size or business mix, Merrill advises backing balance sheet strength. Strong balance sheets will facilitate expansion and will allow maintenance capital expenditure. Six Continents and the Hilton Group have been given an "intermediate buy - long term strong buy". NH Hotels, Accor and Queens Moat have been given "intermediate neutral - long-term buy" ratings.
Davy downgrades Trintech forecast
Davy Stockbrokers has downgraded its forecasts for Trintech following disappointing fourth-quarter results and uncertainty on licensing revenue growth prospects. For the year to January 2003, the company's broker is now forecasting an adjusted loss per ADR share (quoted in the US) of $0.13 on revenues of $66 million, down from its previous forecast of $0.10 per ADR and revenues of $76.7 million. For the following year, Davy has cut its forecasts to a loss of $0.08 per ADR from $0.06, and to revenues of $76.4 million from £$101 million.
