Cantor Fitzgerald ups its forecasts for 'strong' AIB
Stockbroker Cantor Fitzgerald said it is upgrading forecasts for Allied Irish Bank after the lender's "exceptionally strong" interim statement published last week.
AIB announced that it had returned to underlying profitability in the first quarter. That was "a couple of quarters earlier than we had expected", Cantor analyst Fiona Hayes said yesterday.
The bank "effectively enjoys duopoly status in new lending alongside Bank of Ireland" and is well placed to benefit from the recovery in the domestic economy, the stockbroker said.
"It appears that we grossly underestimated the pace at which impairments would decline in 2014 with the bank guiding that impairments had fallen "materially" from the first quarter of 2013," she wrote in a note to clients.
The stockbroker has slashed full-year impairment charges to €546m or less than half previous estimates of €1.1bn, she added.
"The upshot is we expect a full-year profit before tax of €248m now, which marks a huge turnaround from our previous forecast of – €450m."
AIB also has a "substantial buffer" heading into the European Central Bank stress tests this autumn. "This only serves to reinforce our strongly positive view on AIB's credit, with an upgrade from Moody's long overdue. However, like AIB's management, we point once again to the mispriced equity – an anomaly we expect to be resolved by a holistic capital restructuring package," the analyst added.
Despite the upgrade, Cantor still recommends clients to sell shares in the country's second largest lender.
"The key downside risk for all of the Irish banks is that their loan books continue to shrink for longer than our central projection," Ms Hayes said.