Davy downgrades Irish Continental shares to 'neutral'
Shares in ferry group Irish Continental have been downgraded to "neutral" by Davy Stockbrokers, which has argued that the stock is now fairly valued.
"Balancing the undoubted strong investment case, we note that estimates are broadly unchanged in the last two years despite an almost 40pc share price appreciation as the valuation discount to quality industrial transport peers has narrowed," noted Davy.
In a report on the stock market-listed transport group, which operates under names including Irish Ferries, the brokers added that there remains volatility and uncertainty regarding issues such as foreign exchange and post-Brexit regulatory changes.
It also expects rival Stena to respond to Irish Continental's increased capacity on the Irish Sea and services to France, albeit with a time lag.
Irish Continental owns eight vessels and charters one ferry, the Epsilon. Two newly-built ships will be added to the fleet in 2018 and 2020.
The ferry group's enormous new ship, the WB Yeats, will enter service this summer, operating between Dublin and Holyhead, and Dublin and France. The 50,000-tonne passenger ferry is being built at a cost of about €154m at the German shipyard of Flensburger Schiffbau-Gesselschaft & Co.
The ferry will accommodate 1,885 passengers and crew, 165 freight vehicles and 300 cars.
Irish Continental (ICG) also exercised an option to have a second ferry built at the German shipyard. That ship - to be delivered in 2020 - will be the largest cruise ferry in the world in terms of vehicle capacity. It will operate the Dublin-Holyhead route and will cost €165m.
The two vessels will boost capacity on the Irish Sea by 17pc.
"We believe the supply/demand backdrop remains favourable for ICG," noted Davy in its report.
"In 2018, we expect Ireland-UK ship capacity to grow by 5pc, driven entirely by ICG with the arrival of the WB Yeats. Without any sight of further capacity additions by Stena Line or other competitors, we expect this will also increase ICG's market share a further three percentage points to 40pc in 2018."
Davy added that the arrival of the other new vessel in 2020 will add a further 11pc capacity to the Irish Sea and increase ICG's market share in that sector to 47pc.
Shares in ICG were trading at about €5.73 yesterday.