10 Apr 2019

Bank of Ireland Group: Missing at the margins but eyes still on the prize

We have a new report out on BIRG this morning. In the note we reduce NII and EPS forecasts given the NIM miss in FY18, and accompanying lower guidance for FY19 (FY21E total income now 3.4% lower, EPS 7.5% lower). 

 

In the note we also build in a slightly lower capital trajectory on CET1 (FY21E 14.6% vs 15.5% previously, RWAs 1.6% higher) given management commentary on regulatory capital headwinds. However, impairments remain benign (FY18 write-back of 5bps, FY19E 23bps charge) and cost reduction continues apace, while progress on the expansion of the W&I division was a significant positive last year.

 

Medium-term management targets (as per last year’s CMD) remain the focus and we retain confidence that these can be achieved, particularly as progress on volume growth should arrive post Brexit and further cost efficiencies are harvested on foot of the IT investment. Please contact the sales desk if you haven’t received a copy of the report. 

Cairn Homes – Founders reduce shareholding through placing

Cairn Homes has announced that its Founders (Michael Stanley, Alan McIntosh (via New Emerald LP) and Kevin Stanley)  have sold a combined 17m shares, representing 2.2% of the company’s issued share capital, through a placing conducted after the market closed yesterday. The transaction took place at a price of €1.34 per share, a 5% discount to yesterday’s closing price.

 

Alan McIntosh stepped down from Cairn’s executive team in September last year so it is perhaps not a surprise to see him sell down his shareholding, while the Stanleys had accumulated significant holdings of ordinary shares in the group following the conversion of a batch of founder shares each year between 2016 and 2018. Michael Stanley and New Emerald LP will now hold c.2.7% and 5% of the company’s outstanding ordinary shares and both parties have agreed not to dispose of further shares for a six month period. 

Irish REITs: ‘Crane Count’ dips slightly in April

The latest Irish Times Dublin Crane Count, in conjunction with Savills, reveals a modest fall in the number of machines on the Dublin skyline.

 

On the 1st of April there were 117 cranes over the capital, which represents a drop of six on the previous month’s record 125 reading. Some 70 cranes (-4) were on the south side of the Liffey and 47 (-2) on the north side.

This brings to an end a remarkable sequence of five successive all-time highs in the index, which started with November’s census, which identified 102 cranes. While a number of large schemes in the Docklands and the south city centre have drawn to a close, other developments are set to take off in the near future, including a very welcome 22 storey development by Mr. Johnny Ronan close to the Irish Times’ offices on Tara Street, which at 88m will be the tallest building on the Island of Ireland post-completion.

Despite a marked uplift in development activity (the number of cranes over the city has trebled in the past three years) virtually all segments of the Dublin property market are still reporting supply shortages. This cycle still has further to run. 

UK Parliament backs short extension request

Yesterday UK MPs voted 420 to 110 to back the Prime Minister’s proposals to extend the UK’s departure from the EU from 12 April to 30 June. But in a blow to the Prime Minister, 97 of the 110 MPs who opposed the “Brextension” were Eurosceptic Tories and a further 10 consisted of the government’s confidence and supply partners the DUP. Nevertheless, parliament’s approval means that the Prime Minister will put forward her case as originally planned to EU27 leaders at 5:30pm this evening. Last night also saw the draft conclusions for this evening’s emergency Brexit Summit leaked to the media. Notably, the document does not contain an explicit end date for any extension but rather states that it should be “no longer than [XX. XX. XXXX].” 

 

Extension timeline divisions

This comes amid reports that European capitals are divided on whether to extend Article 50 to the end of 2019 or to March 2020, with EU27 leaders set to make a firm decision tonight. The draft also offers an element of flexibility that would allow the UK to leave the EU earlier “if the Withdrawal Agreement is ratified by both parties before this date”, in which case Brexit would “take place on the first day of the following month”. Overall it remains to be seen what the precise terms and length of any extension that will be offered by the EU27 but it looks almost certain to be longer than that sought by the Mrs May. EU Council President , Donald Tusk, as much as confirmed this yesterday when he said that “a rolling series of short extensions” will set up more “new cliff-edge dates”.

 

Thought of the day

ECB preview: To tier or not to tier?

 

The ECB is set to announce its latest policy decision later today, unusually on a Wednesday. The initial policy decision will come at 12.45 followed by the press conference at 13.30. We, in line with market consensus, expect the ECB to hold policy steady this month. As such the key policy rates should stand at -0.40% (deposit rate), 0.00% (main refinancing rate (refi)) and +0.25% (marginal lending rate). We do not expect any change in the forward guidance on interest rates this time, with this adjusted last meeting to say that key policy rates are expected to remain at their current levels “at least through the end of 2019”.

Perhaps the bigger policy focus today will be on whether the ECB is seriously considering a ‘tiering’ of its deposit rate. In a significant step change from previous years, numerous GC members have come forward in the last month to offer their thoughts on a possible ‘tiered’ deposit rate. The crux of the issue is that there are concerns that a prolonged period of negative rates would have an adverse impact on bank profitability and in turn credit extended. The sudden interest in a possible ‘tiering’ of the deposit rate has may have come about following the ECB’s updated interest guidance, more bearish economic assessment, and related concerns that this might imply negative rates persisting for a time longer. 

Economic releases

EU:         09:00 Italian Manuf. + Industrial Production

               12:45 ECB Rate Decision

               13:30 ECB’s Draghi Press Conf.

UK:         13:05 GDP + Trade Balance + Manuf.+ Industrial Production

US:         12:00 US MBA Mortgages

               13:30 CPI

               19:00 FOMC Minutes