Bank of Ireland shares ‘unjustifiably cheap’

BANK of Ireland shares are “unjustifiably cheap” and a buy with a low risk, according to leading US stockbroking firm Smith Barney which is owned by Citigroup.

In a research report entitled "Bank of Ireland The Second Worst Bank in Europe? - We don't think so" Smith Barney put a 12.50 price target on the shares which closed at 10.77 yesterday.

The US securities firm notes that Bank of Ireland has underperformed the European banks index by 27% since the start of 2003 and by 4% since the start of this year.

"Whereas a number of European banks have bounced back sharply from the March 2003 lows, Bank of Ireland's share price is up only marginally," they point out.

Looking ahead, Smith Barney said that the outlook for the bank's core business markets in Ireland and Britain looks robust with rising GDP forecasts and double digit loan growth.

"We believe that BoI shares are unjustifiably cheap, and that the current share price provides an attractive buying opportunity," analysts Phillip Richards, Tom Rayner and Simon Samuels said in their detailed report.

The trio blame AIB Ban in part for the poor performance of BoI shares and say the shares have been "dragged down" by AIB's recent results.

"The 3% fall in Bank of Ireland's share price on the day of AIB's results and the subsequent 5% fall are unjustified in our opinion," Smith Barney said.

Smith Barney also point out that the shares have sharply under-performed its peers.

"Over the same period Bank of Ireland has also under-performed the Irish stock market, by 20% since the start of 2003 and 10% since the start of 2004," they add.

SB see significant potential in Bank of Ireland's link up with the British Post Office to distribute Bank of Ireland products through the 17,000 outlet post office network, far larger that the biggest British branch network of just over 2,000.

"The outlook for the current financial year and beyond remains upbeat. Ireland accounts for ca55% of group profits, Britain ca30% and the rest of the world ca15%.

"The economic environment in Ireland continues to strengthen, with GDP forecasts of 4% for 2004 and 5% for 2005 (source: AIB) and loan growth has accelerated to a very robust 19%.

"In Britain, the business focuses on the mortgage market where loan growth remains at 14% year on year. Asset quality also remains robust across the group bad debts are expected to fall by ca13% in nominal terms in 2003/04," the brokers said.