Davy says AIB’s €2bn M&T stake is not sustainable
Davy banking analyst Scott Rankin sees a 22% upside in AIB shares over the next 12 months with their sum-of-the-parts model generating €15.90 price in a year's time. The shares closed at €13 yesterday. "We are increasingly of the view that the 'M&T discount' will eventually disappear.
"We believe it is highly likely the group will exit the US in the medium term via a disposal or de-merger as holding a 22.5% stake is not a sustainable strategy in our view. Selling M&T now would generate a profit of maybe €100 €150 million," Mr Rankin said in a note to clients.
Mr Rankin told the Irish Examiner that the de-merger route could put M&T shares directly into the hands of AIB shareholders but said this had tax implications. Mr Rankin said the large amount of cash could also be used to fund a share buy-back programme.
"AIB might not be adverse to sitting on a sizeable cash sum like this until the right deal comes along," he added.
AIB's full year results are due February 24 and Davy, owned by rival Bank of Ireland, expect pre-exceptional profit before tax of €1,227 million and diluted adjusted EPS (earnings per share) of 116.7c compared with €121.8c last year.
"We expect quite a lot of noise in these numbers, which investors should not allow to obscure some strong underlying trends. Our EPS number adjusts for goodwill, the loss on the Govett and Allfirst deals, and M&T restructuring costs," he said.
Even taking into account the negative impact of the FRS17 pension accountancy standard, the government levy, currencies (knocking 4% off growth), and property disposals in the first half of the year (H1) Davy said: "Our best guess was that stripping all these out AIB earnings grew by 5.5% in H1, and we think the figure for the year should be over 6%," Mr Rankin said.
Davy's current forecasts imply an acceleration to 8% growth this year and 9.5% next year as margin pressure dissipates and fee income rebounds.
