Tuesday 19 November 2019

Companies bounce back but banks still rack up losses

Thomas Molloy and Donal O'Donovan

THREE of the country's biggest companies yesterday reported a rise in profits for the first half.

In a clear sign of improvement in the economy, bookmaker Paddy Power, dairy company Glanbia and builders provider Grafton, which together make up more than 7pc of the stock exchange's main index, either confirmed or increased their profit guidance for the entire year.

Companies such as food giant Kerry and insurer FBD have also recently posted higher profits, adding to the evidence that the economy is gradually fighting back following the worst recession in more than 70 years.

Yesterday's results came less than 24 hours after a new survey of consumer confidence advanced close to a five-year high and the Central Statistics Office said retail sales rose 0.7pc in July from the previous month as hardware, fuel and textile businesses all sold more.

Consumer sentiment adva-nced for the seventh straight month as the public appears to be drawing solace from the prospect of a new deal to reduce the country's crippling debt burden.

"Spending may now be beginning to stabilise," Davy Stockbrokers said yesterday.

In a stark reminder of the fragile nature of the recovery, however, Permanent TSB said yesterday that it had swung to a loss despite last year's €4bn recapitalisation.

Permanent TSB remains a basketcase along with other financial stocks such as Bank of Ireland and the former Anglo Irish Bank, which have also seen losses widen this year despite massive Government help.

Together with Allied Irish, the four lenders have posted a collective first-half operating loss north of €3bn -- which still dwarfs the profits of all other companies with primary listings on the Dublin stock exchange.

Many of the companies listed on the stock exchange have seen share-price gains as their profits rise. Shares in both Glanbia and Grafton have surged 33pc this year while Paddy Power's shares are up 15pc, which gives the bookie a bigger market capitalisation than Bank of Ireland.

Advances like these have helped the ISEQ's benchmark index become the third-best performing stock market behind Denmark and Germany this year among Europe's developed economies.

While the recent results season has seen a raft of upgrades from stockbrokers, most companies continue to see stronger growth overseas. Still, they are often posting growth at home for the first time in years.

Glanbia said yesterday that the Irish retail environment for food, where the company sells products such as Yoplait yogurt and Kilmeadan cheese, "is showing some degree of stabilisation" but cautioned that the market remained "fragile and consumers' focus on price remains the key feature".

The outlook for the remainder of the year was described as "satisfactory".

Over at Paddy Power, profit at the group's Irish operations rebounded 79pc in the first half as fewer Irish horses romped home at Cheltenham and other race meetings. The bookmaker also opened one new shop here but noted that punters reduced their average bet. Excluding the impact of that new shop, net revenue was up 12pc.

Grafton, which expects operating profit to post double-digit growth this year thanks to improvements in the UK, is far less optimistic about the pros-pects for Ireland. Chief executive Gavin Slark painted a gloomy picture yesterday after an 8.7pc decline in sales at the company's Woodie's DIY chain.

"I wouldn't say it was despair but I wouldn't say there was much in the way of hope. We're really not seeing the Irish market changing very much at all from what it has been over the last couple of years," Mr Slark said.

While results from many Irish companies are showing signs of growth or stabilisation, the bombed-out financial sector continues to disappoint. Permanent TSB yesterday posted an after-tax loss of €566m for the first half as more and more customers fall behind with mortgage payments. The bank's CEO, Jeremy Masding, said yesterday that it would be at least two years before the lender returns to profitability.

Last week, Irish Bank Resolution Corporation's first-half loss widened to €724m as the former Anglo Irish Bank said 87pc of loans are "at risk".

Bank of Ireland shocked investors earlier in the month when it said underlying operating profit slumped by two-thirds in the first six months of the year. The underlying pre-tax loss climbed to €907m from €722m. Allied Irish Banks posted an operating loss of €1.1bn in the first half.

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