AIB demand remains strong as stock tumbles

The Government, through its advisors, has already received more than enough orders from investors to proceed with the sale of 25% of its near total shareholding in AIB.

In an early indication of strong investor demand, the partial IPO was fully subscribed yesterday — the first day brokers marketed the shares to potential investors. They will continue to market the stock for the next 10 days in a bid to secure the highest possible share price.

While only around 0.1% of AIB is currently owned by retail investors, the bank’s share price opened trading yesterday at a price of €6.50. That soon changed, with the share price plummeting by nearly 30% as investors heeded previous warnings from Finance Minister Michael Noonan that the bank’s stock was overpriced.

That opinion was underlined with the publication on Monday night of the prospectus for the partial sale of the State’s stake in the bank, which tentatively priced AIB shares at between €3.90 and €4.90.

The actual flotation price is set to be announced “on or around” June 23, with the new shares being admitted to both the Irish and London stock exchanges in the final week of this month.

AIB’s existing share price closed yesterday at €5.60, still above the IPO pricing range, but ultimately almost 14% lower than where it began the day.

While the current price is still seen as unrealistic, analyst opinion is upbeat.

“We are very comfortable that AIB is well positioned to grow and of relatively low risk to investors,” said Merrion Private’s Darren McKinley, who added that the bank is now focused on sustainable profit growth and shareholder returns — as evidenced by its recent resumption of dividend payments.

“The economic backdrop for future lending growth is very attractive. Ireland remains one of the strongest growing economies in Europe with the number of people in employment back to record levels of around 2m. With mortgage rates and housing affordability attractive, on historical basis, across the country, we expect net new loan demand to gain traction.”

Mr McKinley said AIB looks “well positioned” to sustain earnings at a €1.2bn run rate over the medium term.

“At their current equity position, this would equate to an 11.3% return on equity,” he said.

Based on the estimates and projections in this week’s prospectus, AIB is heading for a company valuation of between €10.6bn and €13.3bn upon its partial float.

The State, which bailed out the struggling lender to the tune of almost €21bn nearly seven years ago, should still be well on course to recover the €3bn it originally targeted from its first tranche sale, but the overall figure could rise to as much as €3.8bn.

Mr Noonan said this week that “the time is right” to progress the AIB sales process, adding that market conditions “remain favourable” and there had already been a strong level of interest from investors.

If successful, the transaction would be “an important milestone” in the Government’s journey to dispose of its banking investments, he said.

Fianna Fáil finance spokesperson Michael McGrath called the move a “statement of confidence” in the Irish financial system and “an important step” in understanding the value of the State’s overall stake in AIB.


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