IL&P forecast fall in operating profits

IRISH Life & Permanent (IL&P) forecast operating profits this year will be well down on earlier estimates — €50m according to Davy Stockbrokers or €33m predict NCB brokers — it emerged yesterday.

IL&P expects post tax earnings to grow by 10% this year before the impact of the fall in equity markets is factored in the company disclosed yesterday.

The company said: “Falling investment markets will result in a negative unit-linked management fee variance which, based on investment markets at 13 December 2002, is estimated to be in the order of €90m to €95m.”

Investors reacting badly to the news wiped 1.34% off the share price by 10.30pm yesterday but while it recovered, it dipped again to closing at €10.20, 1.34% down on the day.

“Steps have been taken since the interim stage to reduce the company’s exposure to the equity markets and this, combined with an improved underwriting performance, indicates that the full year performance should not be significantly different from the loss reported at the interim stage,” the company said in a preclose trading statement yesterday.

Commenting on the details released in the statement NCB’s John Kelly and David Odlum in a note to clients yesterday said:

“Our existing operating profit estimates for 2002 and 2003 are €217m and €327m respectively. On a preliminary review, these numbers are likely to fall to €184m and €294m respectively. This translates into a 2003 operating EPS of c110c.

“Our 2002 estimates will be reduced to take account of the additional unit linked variance of €25m and a reduction in the value of new business estimate of c€8m. The value of new business is set to recover in 2003 on the back of improved margins.

“Our 2003 estimates will be reduced principally to take account of the new Government levy (€12m), the impact of the recent rate cut (€11m) and a lower value of new business estimate (c€5m),” the NCB duo said.

Disposal of surplus branches as a result of the TSB takeover have been a lot higher than originally anticipated, and are expected to be €30m this year. This will be treated as an exceptional gain according to IL&P, offset by €10m of further costs of integration.

IL&P have also identified an extra €2 million in savings through synergies but say while delivery will be slow the anticipated savings of €27m from the merger will be achieved by the end of 2003.

Merrion Capital’s Seamus Murphy. commenting on the results, early yesterday, said:

“Overall, Irish Life continue to forecast flat sales for 2003 over 2002, which we believe remains an ambitious target. Although some improvement in margin is likely, we believe it is prudent to reflect a more difficult life market in our forecasts and we will reduce our numbers accordingly. In terms of valuation, yielding circa 5% in 2003 this stock offers good value.”