Friday 18 August 2017

Richard Curran: Thousands of Cork Apple staff hit jackpot with share price surge

'The real exponential growth in Apple’s share price came between 2005 and 2012.' Photo: Bloomberg
'The real exponential growth in Apple’s share price came between 2005 and 2012.' Photo: Bloomberg
Richard Curran

Richard Curran

When the market value of Apple Inc tipped over $800bn for the first time during the week, it wasn't just good news for punters who have bought into the stock. It was also very welcome news for the group's 6,000 or so employees in Ireland. Many of them participate in an employee stock ownership programme which allows them to buy shares in the company at a 15pc market discount.

They can't just fill up their boots though, as purchases at this rate are limited to 10pc of annual salary up to a maximum of $25,000 per year. Separately, every staff member also gets a limited number of free shares under a scheme announced by chief executive Tim Cook in late 2015.

The real exponential growth in Apple's share price came between 2005 and 2012. Somebody earning $100,000 per year, who bought 10pc of salary each year, between 2005 and 2012, would have enjoyed an estimated 850pc investor return. If they kept it up, and didn't sell any of the shares, their stock today would be worth around $1.2m, having put in about $110,000.

When the free shares scheme was announced it was reported that staff were given $1,000 to $2,000 worth of shares each or more depending on years of service, etc. Assuming the average was $3,000, Apple's 6,000 staff have bagged around $9m worth of free shares as the stock has climbed around 50pc since the beginning of last year.

No doubt there are quite a few highly-paid Apple millionaires down in Cork who have really benefited from the employee stock schemes by staying with the company since the mid-noughties.

And there could be more to come. One analyst has suggested Apple's market capitalisation could hit $1trn in two years having placed a price target of $200. This comes despite lacklustre second-quarter results.

I remember one Irish tech investor telling me back in February 2013, that over at least two decades, he had made around $80m in profit from buying and selling Apple shares. At the time, Apple shares had fallen in value by a third and many were questioning its future performance. He told me at the time he was buying them up. They were trading at $65 then and are now at $153. What's that phrase again about money makes money?

Confidence in Trump fading

Speaking of US share prices, it seems the market is abandoning the "Trump premium" when it comes to financial de-regulation, oil companies and building materials. Investors are instead looking at the performance of each company rather than assuming the new Trump administration is going to deliver massive change to bolster certain sectors.

Take the Mexican wall - two cement firms tipped to make millions from supplying material for the wall have seen their share prices trimmed back substantially since January. Building materials group Martin Marietta's shares gained 6pc in a couple of days after Trump was sworn in. The company has since shed $1.2bn from its market value. Vulcan Materials, another company tipped to gain from the wall, has seen $600m wiped off its value since January.

The market is still expecting a much- needed US infrastructure programme, but nobody is clear yet on how it will be financed. In the meantime, they are piling into tech shares.

Crane business hits new heights

There is certainly plenty of building going in Dublin - maybe just not houses. The crane count is somewhere between 70 and 90 depending on who you talk to and the quality of their binoculars.

Either way it is seen as a big pay day for developers. But hold on a minute. Lots of cranes are a guaranteed big payday for crane companies. Developers may or may not make their money when the cranes come down.

One well-known crane hire business doing very well is Dermot O'Leary's Crane Hire. Run by Dermot and Jarlath O'Leary, its latest accounts show retained profits of nearly €10m as of December 2015.

Things have probably got even better since then. In 2015, the two directors received nearly €740,000 in remuneration and the company was in rude financial health with €3m in cash on the balance sheet.

Crane Hire has had a total of 60 mortgages or charges as it borrowed to fund crane purchases or leased them. It owns some of the biggest cranes in Ireland including a 500 tonner.

A look at its charge history shows how it has tended to pay back borrowings after two years, thereby releasing the charge. It was all go until 2006, and then there were no new charges until 2012.

Since the period covering its last accounts, it has continued to expand with four mortgages on Liebherr cranes taken out in 2016 and another one so far in 2017, all with Deutsche Leasing.

It is a pretty "uplifting" business to be in right now.

Noonan must go for AIB sale

With all of this market buoyancy, it is a very good time for Finance Minister Michael Noonan to pull the trigger on the AIB IPO. The minister has suggested that the Cabinet will make a decision in the coming weeks. They shouldn't hang about.

KBC Bank Ireland reported a first-quarter profit of €70m, more than double the same quarter last year. Mortgage lending across the main banks is also rising substantially.

This all augurs well for bank valuations in Ireland where flogging mortgages is expected to be a big part of the future business model - once there are some houses to sell that is. Now that Marine Le Pen is not president of France and the single currency looks like it might last beyond 2017, there may not be as a good a chance to push the button on AIB. After all, its only a quarter of the State holding going to market. It isn't an all or nothing bet.

North West exposed to Brexit

The latest set of Census 2016 figures to be released provide some interesting insights about what is happening in rural Ireland. We knew the country was becoming more urbanised, and there is a population shift towards the east coast, but the scale and pace of these trends is significant.

There are now 41 towns home to 10,000 or more, with 27 in Leinster. But there are only five in Connacht/Ulster. All three of the biggest towns in the provinces outside Leinster - Ennis, Sligo and Letterkenny - experienced population declines over the five years from 2011 to 2016. It is extraordinary to think population decline isn't just about very remote rural regions of north Mayo, etc.

In 2015 I made an RTE TV documentary The Battle for Rural Ireland. It looked beyond the traditional presentation of it being about agriculture, but how demographic and economic changes are posing a real problem even for sizeable towns in some regions - especially places not near a city.

The north west is more vulnerable to a hard Brexit than any other region and as a region it is without a city.

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