Surprise 'sell' rating for BoI as shares rise 'too fast'
Published 22/02/2012 | 05:00
DUBLIN brokers Goodbody yesterday slapped a surprise 'sell' recommendation on Bank of Ireland, claiming the plc's shares had risen "too far too fast" and could fall as much as 25pc from recent highs.
The 'sell' recommendation came a day after the bank revealed a worse than expected net interest margin for 2011 and admitted losses on some loans would exceed the base case predicted by last year's stress tests.
Goodbody banking analyst Eamonn Hughes said there had also been positives in BoI's results, including good progress on assets sales and "stronger than anticipated deposit growth".
But he stressed that those encouraging factors had already been priced in by the market as BoI's shares surged as much as 80pc so far this year, and he added that neither factor was likely to trigger material improvements in 2012's margin.
On the other hand, Goodbody believes that BoI's admission that loan losses were heading beyond the Central Bank's base scenario could have a significant impact on future results, and Mr Hughes has upped his expectation for those losses.
That, in turn, triggered a reduction in what Mr Hughes sees as the 'fair value' of BoI's stock, which he now puts at 11c. The shares started the year below 9c but have traded around the 14.4c to 15.2c range this week.
"Our view is that the share rebound year-to-date looks premature, with about 25pc downside," Mr Hughes said. "Sell."
He is the first of the Irish analysts to adjust his figures and recommendations after this week's results. Davy, which has BoI at 'outperform', is expected to update its numbers following an investor day with BoI in London tomorrow.
NCB, which rates BoI as a 'buy', will also issue new figures before the end of the week.
BoI is still covered by a number of London analysts who are expected to meet management today.
Credit Suisse upgraded BoI to 'outperform' on results day, last Monday. The others have not yet changed their recommendations.