Irish shares now attractive, says Schroders
IRISH shares are attractively valued and are set to benefit from an improving economic backdrop, two brokerages said yesterday.
"We took a view that Ireland went into the crisis early, took the medicine, and is probably going to be one of the early recovery stories," said Andy Lynch, manager of the Schroder Euro Dynamic Growth Fund.
The benchmark ISEQ Overall Index is almost unchanged since the beginning of the year and up 3.8pc since this time last year. Schroders's €176.4m fund lost 9pc in the six months to June, compared with a decline of 8.4pc for its benchmark.
"The Irish economy isn't going back to the 7-8pc growth, the Celtic Tiger rate, but the structural advantages are still there: a low local tax rate, English-speaking, open economy," he said, adding that negative perceptions of Ireland had made valuations more attractive. The fund has 4.2pc of its money invested in Ireland, compared with the benchmark 1pc. This includes stakes in Bank of Ireland and Allied Irish Banks.
The need for both banks to recapitalise meant "we knew we would be asked to buy a lot more shares but we went in with our eyes open," Mr Lynch said.
Ryanair has been another recent addition to the fund. The company's decision not to buy 200 planes from Boeing and instead return cash to shareholders was key to Mr Lynch's decision. Ryanair will this year pay its first dividend since its flotation in 1997. Mr Lynch also pointed to the company's operational strengths.
The fund manger has been a long-term fan of Irish banks, telling CNBC back in July 2006 that he had "been adding to positions in the Irish financials, particularly in Anglo-Irish Bank".
Credit Suisse also backed the Irish banks yesterday, saying Allied Irish and Bank of Ireland were "undervalued" and may benefit from market consolidation. The Swiss brokerage set a share-price estimate of €1.10 for Bank of Ireland, 27pc above the previous day's closing price. Allied Irish was given a projection of €1.30, 34pc higher than the stock's close.
"The Irish market was overly competitive pre the crisis," Credit Suisse analyst Niall O'Connor said in a research report.
"Since then, many players have either decided to exit or otherwise scaled back (including Lloyds and Danske Bank), while the Government has stated that it is keen for smaller domestic players to merge," he said.