AIB upgrades earnings forecast

AIB has revised its earnings forecast for 2005 in its pre-close trading statement for the first six months of the year.

AIB is expecting to achieve good growth in the first half and has upgraded its earnings forecast for the year by 2.5%, which was in line with market expectations.

In its trading statement, it said the new earnings per share (EPS) range has been shifted up to 138c-140c from its earlier forecasts of 135c-137c.

The strong outturn achieved in 2004 is continuing into the current year, with gains across many market segments coming through as the year moves on. Ireland was performing particularly well and overall, the outlook is positive, the bank said.

“Based on strong current business trends and pipelines, together with better than anticipated asset quality, we are increasing our EPS guidance,” it said.

Growth at the interim stage should be particularly strong due to a very low bad debt provision charge, it said.

The more upbeat forecast is based on the evidence that the strong, consistent and broad-based performance reported in 2004 is continuing this year.

Key income drivers are the same as last year and include high rates of increase in both loans and deposits. This reflects further market share gains in targeted sectors and products in each its franchises.

Customer demand for its range of deposits has increased, notably in the Republic.

Another important factor driving up the EPS figure is that income growth is expected to outpace cost growth again in 2005. In the Republic, the bank said deposits were on track to rise by 15% in 2005, with loans expected to grow by more than 20%.

Its life assurance arm Ark Life was performing in line with expectations and was expected to record increased operating profits.

The bank said it expected “good growth” in its Polish operations after a strong recovery in 2004, while US bank M&T, in which AIB has a 22% stake, was targeting double-digit earnings growth for 2005.

Total costs would rise by about 6% this year, though growth in the first six months would be higher because of the costs of complying with new regulatory requirements. In another positive move, it said charges for bad debts would be “particularly low” in its interim results, despite strong and consistent loan growth. AIB shares were up 20 cent at €17.28 in Dublin yesterday afternoon.

Dolmen Securities senior analyst Stuart Draper said the forecasts “are very good and it looks as if Michael Buckley is going out on a high.”

But he believes the improved earnings forecast has already been stitched into the current share price at €17.28 and has advised investors to sell at these levels.

“There is no doubt the outlook painted by the bank is really, really good. I think the shares are fully valued and are also at a premium to the UK banks.”

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