Stockbroking firm Merrion has cooled its enthusiasm around Irish stocks in the midst of rising Brexit uncertainty.
In its latest equities review, the firm has recommended less than half of the Irish stocks it regularly assesses as investment options.
“Given the risk of a hard Brexit, we remain sanguine toward Irish equities until we get more clarity of what the final outcome may look like. As such, we have only ‘Buy’ recommendations on 40% of our Irish equity coverage,” said Merrion’s senior equity analyst Darren McKinley, and its chief economist, Alan McQuaid, in the review.
“With many Irish companies valued at over 16 times earnings and the growth outlook dependent on the shape of Brexit, we prefer to maintain a cautious bias toward Irish equities whose outlook is at greater risk from a hard Brexit and possible US trade tariffs than other European countries,” they said.
Among the stocks that do take Merrion’s fancy are CRH, Glanbia, and UDG Healthcare — Irish companies with a large exposure to the US. However, it is also talking up the long-term benefits of investments in the likes of AIB, Bank of Ireland, and cider and beer maker C&C, which it said “could significantly surprise over the next 12 months”.
In the small cap space, Merrion sees value in the likes of Kenmare Resources, CPL, IFG, and Yew Grove Reit.
Merrion also reiterated its warning of the effects of a hard Brexit on the Irish economy, both in terms of trade and exports and employment levels.
“There is significant employment related to Ireland’s trade with the UK. The UK might account for 17% of Ireland’s total exports, but Ireland is more dependent than that when you consider the jobs element related to those exports.
“SMEs — particularly [those related to] agri-food and tourism — will likely be more affected than larger companies by the introduction of tariffs and barriers to trade. A hard border, if it materialised, would impact negatively not just on the movement of goods but on the movement of people too. Ultimately, it would result in higher unemployment across the island as a whole, and put foreign direct investment at risk,” said Merrion.
“With no progress from Britain on what shape its departure from the EU will look like, the risks get greater of a hard Brexit.”