The Irish Stock Exchange commissioned research recently that laid out detailed analysis of the exchange’s impact on the economy.
Its contents have been well telegraphed across all media but the bit that intrigued me was buried towards the end of the 100 page report.
Under the title ‘Selected Historic Milestones’, you will find hints to what the exchange is all about. Rather than being a static entity, the exchange, and its constituent members and their investors, ebb and flow in response to capital raising themes that surface at different periods.
In the 1830s, for example, there was a boom in the trading of railroad and canal stocks. In the 1890s, there was a surge in share trading of bicycle companies. Exploration companies became a major theme during the 1980s. Agrifood companies stepped forward in the early 1990s.
Since 2013, real estate investment trusts (REITs) have made a spectacular debut on the exchange. In less than two years, REITs have, between them, raised upwards of €2bn from global investors to buy and develop properties in this country.
This, once again, highlights the ability of a stock exchange to connect ambitious companies with investors. Twenty years ago, those institutional investors were primarily Irish. In the intervening period, that has changed dramatically as international asset managers have emerged as core supporters of companies listed in Dublin. Fund managers with global mandates, working from offices in centres such as New York, Toronto, London, and Frankfurt, have an intimate understanding of the business models, strategies and management teams of Irish corporates. It is a resource that can be tapped by both existing listed companies and those who remain private.
The changing complexion of the stock exchange mirrors developments in the Irish corporate world.
Whereas capital raising for railways in Ireland and across the British Empire was a priority in the 1830s, today it is commercial property that has traction with the investment community. What could be next ?
First, the existing companies on the exchange are potential issuers of equity. The reason they could be reticent is due to a good problem — strong balance sheets. A perusal across most industrial and agrifood companies, in particular, shows a collection of companies that have relatively low levels of debt and strong cashflows.
That can fuel their acquisition ambitions without asking existing equity holders for a bob, but I would not underestimate the ambition in many of these companies to stretch their muscles over the coming years.
I think the entire infrastructure asset class is fertile ground for the exchange to explore.
As recently as 2008, there were about 400 infrastructure funds globally. Today, that has jumped to over 2,000 as investors chase hard assets that can pay regular, reliable incomes in a low interest rate environment. It is estimated that about $90bn (€71bn) is tied up globally seeking opportunity in this area. The definition of infrastructure is evolving too. Buildings and utilities were once at the core of infrastructure assets. Now, that is moving towards other forms of hard assets and trains and planes have become viable candidates.
While Ireland was a fund provider for trains and railways in the 1890s, we have effectively no competitive edge in that market today. Aircraft are an entirely different proposition.
Ireland is home to more than 30 aircraft leasing companies, accounting for over 50% of a global market that needs about $110bn annually to finance ordered commercial aircraft.
Somewhere in the middle of that, capital markets activity, there must be an opportunity for entrepreneurs to leverage the stock exchange’s platforms to exploit a huge and growing marketplace.
Joe Gill is director of corporate broking with Goodbody Stockbrokers. His views are personal.
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