Bank of Ireland strong takeover target

BANK of Ireland is seen as a strong takeover play by a number of analysts during 2004.

Top of the list of brokers to identify the Irish bank is Credit Suisse, who singled Bank of Ireland out as the only serious takeover play in Ireland for the current year.

Stuart Draper of Dolmen Butler Briscoe says the identification of the bank by Credit Suisse and its obvious international financial clout has increased the chances of a bid for the bank in 2004.

In a take-out situation investors who buy the stock stand to make a gain of 33% on the current price pushing the value of the stock out to about 15, said Mr Draper.

The share is currently valued at €11.30, and has already risen 10% since December 1 as sentiment on the stock has begun to shift.

Even without a takeover, the bank offers a potential return of 10% this year and for that reason the broker maintains his Buy recommendation made in early December. Previously Mr Draper, in his own analysis of the bank, argued BoI had put itself in play. It had done so through its failed bid for Abbey National in 2002.

Again in a note to investors yesterday, Mr Draper said that other banks in Britain who made failed bids subsequently became targets and were taken over.

Two cases in point were Nat West and Bank of Scotland who were subsequently bought out by Royal Bank of Scotland and Halifax.

Mr Draper said “such an effort signals to the market a company's willingness to participate in a transformational deal”.

He also indicated that, by making the failed move on Abbey National, Bank of Ireland clearly signalled its plans to be a much bigger player in the banking sector in these islands.

Having made that plain, it is also a reasonable assumption that any bid, solicited or not, would be seriously dealt with from the outset, said Mr Draper.

On the valuation side Mr Draper says the bank earned 99.2c per share in 2003 which at the same 16x historic earnings RBoS paid for First Active suggests an upper €15.50 limit on the stock in the event of a bid.

On a stand alone basis, he says the shares are worth 12 based on 11x forward earnings consensus.

Reckoning on a 20% takeover premium that would give lower end valuation of €14.50.

However, if a move on the bank emerges Draper reckons an in-between valuation of €15 per share is the most likely outcome, resulting in a 33% increase in the current share price.

Even without an offer, earnings prospects in the current year are looking up and will be boosted by better returns from Bank of Ireland Asset management.

Prospects for the group will also continue to be enhanced by the share buy back programme while the potential rise of sterling as the year evolves could also help the profit performance in the current year.

Of the two, Bank of Ireland has been seen as the more likely to be bought over if a bid emerges for a top Irish bank.

Notwithstanding that Merrion Stockbrokers is not as gung ho on the stock and some time ago removed Bank of Ireland from its top 10 share selection.

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