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Despite tough conditions, Anglo Irish Bank has reiterated its guidance for 15 per cent earnings growth this year. However, the bank has also prepared shareholders for disappointment by highlighting the risk to profitability from further financial market disruption and protracted wider economic deterioration. From that perspective, it’s unfortunate that recent economic data from all its key markets - Ireland, the UK and US - has been bad, and its exposure to the weak UK commercial property market is also a concern.
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That said, the bank’s prudent approach to lending should help bolster it against worsening conditions. Indeed, impaired loans represented a meagre 0.52 per cent of loan balances and customer deposits fund 80 per cent of cumulative lending. The group also seems to have been prudent in making write-downs to the fair value of structured investment vehicle (SIV) and sub-prime related investments by taking a larger than expected €112m hit.
Lending growth of 10 per cent was down markedly on the 37 per cent in 2007. However, costs also fell sharply with the group’s cost to income ratio dropping from 22 per cent to just 19 per cent. Broker Citi forecasts full year EPS of €1.45 (2007: €1.33).
| Anglo Irish Bank (ANGL) | ||||
|---|---|---|---|---|
| ORD PRICE: | €9.65 | MARKET VALUE: | €7,327m | |
| TOUCH: | €9.67-9.63 | 12-MONTH HIGH: | €17.90 | LOW: €6.15 |
| DIVIDEND YIELD: | 2.2% | PE RATIO: | 7 | |
| NET ASSET VALUE: | €5.76 | |||
| Half-year to 31 Mar | Pre-tax profit (€m) | Earnings per share (¢) | Net div per share (¢) | |
|---|---|---|---|---|
| 2007 | 574 | 63.6 | 6.49 | |
| 2008 | 667 | 72.4 | 7.78 | |
| % change | +16 | +14 | +20 | |
Ex-div: 14 May Payment: 15 Jul |
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While Anglo faces challenges that could jeopardise its earnings growth target, the overall picture is one of resilience. So, despite having fallen on our buy tip (€15.39, 5 January 2007), the shares - now on a forward PE ratio of just 7 - simply look too cheap. Buy.
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-IC-2.1.3g-prod - 17/03/2010 18:13:09 - ben.wheeler
