Goodbody recommends sale of BoI shares

A sell recommendation has been placed on Bank of Ireland with a price target of 8c by Goodbody Stockbrokers.

The Dublin-based stockbroking firm yesterday lowered its forecast for 2012 full-year pre-provision profits from €415m to €270m.

In a research paper, Goodbody analyst Eamonn Hughes said the bank faced considerable challenges on its way to recovery.

These included rising loan arrears, pressure on its net interest margin, Basel III capital requirements, and stresses in the eurozone. Investors would be focusing on future impairment trends and its margins.

Moreover, it would be roughly 2017 before Bank of Ireland reached its return on equity target of 13%.

“We remain cautious and note the stock is likely to remain volatile until arrears peak,” said Mr Hughes.

Last Friday, BoI reported an underlying pre-tax loss of €907m for the first half of 2012, below Goodbody’s estimate of a €723m loss.

Excluding the costs of the Government’s eligible liabilities guarantee scheme, the bank’s net interest income was €645m for the first six months of 2012 compared with Goodbody’s expectations of €675m. The bad debt charge for the period was €941m compared with a Goodbody forecast of €915m.

Goodbody said that, including the provisions and losses incurred over the past 18 months, BoI has accounted for roughly 65% of the estimated adverse prudential capital assessment review mortgage losses in Ireland.

Goodbody has increased the 2012 forecast impairment charge from €1.7bn to €1.8bn, but it reduced its forecast impairment charge by a similar amount for 2013.

It is forecasting a net interest margin of 1.25% for 2012. BoI’s margin remains under pressure from the elevated cost of deposits, wholesale funding in general and lower euribor rates.

However, the net interest margin will improve to 1.37% in 2013 as funding costs start to normalise, said Mr Hughes.


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