AIB buyback hit by Allfirst shares
AIB went on the share buy-back spree after it got €900 million in cash following the sale of troubled subsidiary Allfirst to M&T Bank. Allfirst was sold in the fall-out from the Rusnak rogue trader disaster which resulted in trading losses of €691 million over a five-year period.
The emergence of the 16 million shares previously held in trust for Allfirst staff compensation plans has resulted in NCB Stockbrokers banking analysts John Kelly and David Odlum saying that, despite the positive nature of AIB’s trading statement last week, they are downgrading earnings per share (EPS) forecast: “Despite this good performance, we are downgrading our ‘clean’ EPS estimates by 6% in both 2003 and 2004 to 116.1c and 125.2c (from 123c and 133.1c), which is disappointing. Half of the downgrade comes from currency translation (not a surprise given movements in the USD and STG) while the other half relates to additional shares in issue relating to employee compensation plans (not previously highlighted).”
Despite this reduction in forecast EPS, NCB leave their recommendation on the share as an ‘add’ with a price target of €15. AIB shares traded at €12.92.
However, NCB said a continuation of share buybacks, not factored into their current estimates, should boost EPS, while loan growth in AIB’s domestic business above its targeted 15% would provide an additional benefit.
NCB’s Mr Kelly yesterday reduced his recommendation on Anglo Irish Bank from buy to add on valuation grounds following the company’s strong share price performance this year: “The stock is up 17% year to date, compared to Bank of Ireland (+8%), Allied Irish Banks (-1%) and Irish Life & Permanent (0%).
“At 790c Anglo Irish Bank trades on 11.4x 2003 earnings compared to 10.1x for Bank of Ireland and 10.9x for Allied Irish Banks. In terms of price/book, Anglo Irish is expensive, trading on 3.1x, which is full in our opinion. Our price target on Anglo Irish is €8.30,” he said.
Anglo traded at €8 yesterday.
Mr Kelly said operationally, Anglo continues to perform well, with above average EPS growth expected to continue.
“In terms of yield, Anglo offers a 2003 dividend yield of 1.8% compared to 4.3% for Allied Irish Banks, 3.9% for Bank of Ireland and 5.0% for Irish Life & Permanent,” Mr Kelly said.
