Wednesday 12 December 2018

Stock exchange windfall latest big win for forward-thinking Davy

US President Donald Trump and first lady Melania Trump — his corporate tax reform package looks a lot different than the one he promised. Photo: Reuters
US President Donald Trump and first lady Melania Trump — his corporate tax reform package looks a lot different than the one he promised. Photo: Reuters
Richard Curran

Richard Curran

The biggest winners from the sale of the Irish Stock Exchange to Euronext are undoubtedly Davy Stockbrokers. In fact, the country's biggest stockbroking outfit have been big winners in recent years on several fronts from the recovery in the economy.

Davy management and staff will be the ultimate beneficiaries from the €60m payout the firm's 38pc stake in the stock exchange will deliver. Davy may not have plans to distribute the money to shareholders directly but no doubt it will come in handy for further expansion - most likely in the UK.

This is all a long way from where Davy found itself when the wheels came off the economy in 2008. Having bought the business from Bank of Ireland at the peak of the boom, management paid out over €200m for the MBO, only to find several of their income streams disintegrating in the wake of the crash.

Private clients were up in arms with all investment advisers who had put them into boom-time property deals. Everybody's private clients were either broke or scarred from the crash. Stockbroking activity was contracting, as were commissions and margins. Davy, like every other broking house had to let staff go.

But the turnaround has been quite remarkable. It kept its diversity of business units going so when the Government started borrowing again in the crisis, Davy picked up a lot of the business, as others had mothballed their unused sovereign bond desks.

It invested in IT, private clients and even began mopping up other businesses during the recession. It bought the Bloxham private clients business in 2012, and the former AIB Investment Managers business, Prescient, in 2013.

Having opened up an office in Belfast in 2007, Davy acquired four wealth management businesses north of the Border, including the Danske Bank client base.

Davy has the biggest wealth management business in Ireland. Its Northern business alone would be bigger than most on the island of Ireland.

Davy employs 670 staff and has assets under management of €14bn. It has repaid a huge chunk of its debt and has been in expansionary mode for the last five years.

Of course, exactly who owns Davy and what its precise finances are, is not so clear. It is owned by management and staff but a convoluted corporate structure means it doesn't have to make publicly available a breakdown of shareholdings or full published accounts for that matter.

Well, they can add another €60m to the figures - whoever they are.

Davy isn't the only big winner. Brian McCarthy's Fexco and the management and staff at Goodbody Stockbrokers are big gainers from the sale too. Fexco bought Goodbody in 2011 from AIB for €24m. Staff numbers dropped to 210.

They have now climbed back to 320 staff and the business is reported to have quadrupled in value since 2011. Management and staff have doubled their shareholding in the Goodbody to 49pc. But alas, no requirement for published stand-alone accounts here either. There has been a view that Fexco would not sell its 51pc to management in an MBO while it still held a 26pc stake in the Irish Stock Exchange. It made it harder to value the business.

Goodbody will receive close to €40m from this deal, with Fexco getting almost what it paid for the whole firm back in 2011. There is some speculation that with the stock exchange shareholding out of the way, management might get a new backer and have a run at buying out Fexco.

We will have to wait and see.

Tyrone is new Yukon for miner Dalradian Resources

There's gold in them there hills! Richard Conroy of Conroy Gold has been saying that about the drumlins around Clontibret in Co Monaghan for some years. But it turns out there is also a lot of gold just down the road in the Sperrin Mountains in Co Tyrone.

Canadian firm Dalradian Resources has raised hundreds of millions of dollars, which has been spent on developing more than 2km of underground tunnels and more than 100,000m of drilling at Curraghinalt near Gortin.

The firm has just raised $45m and last week submitted a detailed planning application for a major gold mine.

The prospect is described by the company as one of the world's best gold deposits. Dalradian already has 100 people working on the site and believes it could create 350 new jobs. The estimated gold reserve is 1.4 million ounces, which would be worth $1.8bn at today's prices. But of course a nugget in the hand is worth 100 in the ground.

The local community is, understandably, somewhat divided on the issue. Some politicians oppose plans to use cyanide to extract gold from the mine's ore and there are other wider environmental concerns, as the gold deposit is located in a designated area of outstanding natural beauty.

Industry experts have commented that Dalradian could overcome opposition to its use of cyanide by producing concentrate instead of partly refined doré bars and shipping the material to customers.

Dalradian chief executive Patrick Anderson said he expects the planning process to take two years as it will require a full public inquiry, which he supports.

The Curraghinalt gold deposit was first identified back in 1981 by a company called Ulster Base Metals. John Teeling-backed listed firm Ennex took it over and spent years trying to develop the prospect. However, the Troubles at the time meant Ennex could not secure an explosives licence. Ennex finally gave up and sold the rights to Canadian company Nickelodeon back in 1999 for $500,000. The mining rights were then sold on to Tournigan Gold Corporation in 2003 and finally to Dalradian in 2009.

Dalradian has really put some serious money behind the project but no doubt those opposed to it will put some serious effort behind stopping it. Both sides are likely to be heavily committed.

Be a little worried about Trump's corporate tax reform plan

President Donald Trump's corporate tax reform package may now have a reasonable chance of making it through to legislation, except, the finished product will look quite different to the package promised by Mr Trump when he ran for election.

The Corporation Tax rate should finish up somewhere just above 20pc. Add in state taxes and the rate will be around double the Irish rate. But Trump had promised to use tax to incentivise US companies exporting from America while "punishing" American corporations that were selling stuff to America from international operations.

There isn't much sign of that kind of distinction in the proposals making their way through the Senate. However, one set of proposals includes a provision to tax American companies on their earnings from their intellectual property (IP) held abroad.

This could diminish the incentives for US companies to shift IP to other countries. Ireland has grabbed around €300bn worth of IP by having it shifted here on the back of generous tax breaks.

Unfortunately, we have done it in a way that will not yield a massive crock of corporation tax gold any time soon. Government policy attracted this IP to Ireland so it would further embed these multinationals in Ireland and therefore make them a little less inclined to leave.

US companies will still want to utilise the benefits of having offshore bases to access different markets and possibly even the US itself. The tax reform plans as drafted will not be a knockout blow to Ireland's economic and tax offering.

There is every good reason to think US multinationals will stay. But it would prompt some American companies in the future to think twice about what they put offshore.

Sunday Indo Business

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