Your Money: The Irish shares most likely to beat Brexit
It's vital to factor in headwinds which may affect your portfolio as UK quits the EU, writes Louise McBride
When the British Prime Minister Theresa May triggers Article 50 this month, she will start the clock ticking on Brexit - and fuel further uncertainty on stock markets.
Article 50 is the piece of legislation which gives any member of the EU the right to leave the union. As it is expected to take at least two years after Article 50 before Britain officially leaves, investors are likely to be in for a bumpy ride until then.
The reign of US President Donald Trump is also likely to provoke uncertainty on stock markets over the next year - as investors find out the extent to which Trump will live up to some of his wild promises.
Ireland's close relationship with Britain means it is very much in the Brexit firing line. Holders of Irish shares therefore should be mindful of the impact that Brexit might have on their investment.
So which Irish shares might be worth holding onto - or ditching - as the clock starts ticking?
SHARES THAT MAY BE WORTH HOLDING ONTO
The shares of the insulation maker and building materials company Kingspan could be worth holding onto because energy efficiency has become such a major issue in Ireland and worldwide, according to Aidan Donnelly, head of equities with the stockbrokers, Davy.
Kingspan should also be bolstered by the increased amount of money being spent by Irish people on home improvements, added Donnelly. The tax breaks available under the home renovation incentive (HRI) scheme have encouraged more Irish people to upgrade their properties in recent years - homeowners spent more than €1.3bn renovating their properties under the HRI scheme over the last three years. "There's a good long-term story with Kingspan because of trends in energy efficiency and building improvements," said Donnelly. "This is a secular trend [a trend which isn't affected by the economy] which should continue this year and which is unlikely to be impacted by Brexit."
The uncertainty created by Brexit will represent a challenge for Ryanair over the next two years, the airline warned recently. Its profits have already been hit by a collapse in the price of sterling in the wake of last June's Brexit vote - falling by 8pc in the third quarter of 2016.
Some investment experts still believe that Ryanair has a promising future though.
"Brexit will be an issue for Ryanair but it won't fundamentally affect its long-term growth," said Donnelly. "Ryanair's balance sheet is strong and it continues to grow its network."
Standard Life Investments believes Ryanair's business is "a winner".
"Ryanair has a consistent cost advantage relative to its peers," said Tom Dorner, investment director with Standard Life Investments' European equities team.
"So while Brexit is a challenge, Ryanair will continue to take market share from its competitors. Even though Ryanair shares were volatile after Brexit, the airline has continued to deliver strong results."
Demand for Dublin commercial property is expected to increase as Brexit rolls on.
Investors in Irish Real Estate Investment Trusts (REITs) - property investment companies listed on the stock market) could do well from Brexit, if a flight of British firms and employees to Dublin pushes up demand for property.
"Consider Green REIT if you want to invest in property," said Peter Brown, founder of Baggot Investment Partners. "Green REIT is a flexible way of playing property. If the market turns on the back of Trump or Brexit, you can get out of your investment quickly."
Merrion Capital believes that Green REIT "has a superb asset base with a strong rent roll". "We believe that the commercial property market will continue to tighten as more companies look to move from London to Dublin," said David Holohan, chief investment officer with Merrion Capital.
The recruitment firm CPL saw its pre-tax profits for the year to the end of June 2016 jump by more than a fifth last year.
Earlier this year, CPL also reported strong half-yearly profits and revenues. Merrion Capital believes CPL is therefore a share worth having.
"The Irish economy is in the best position that it has been in several years and the Irish employment market is robust," said Holohan. "This is providing CPL with a positive market backdrop to drive growth, supported by the expected influx of jobs to Dublin from London."
SHARES THAT LOOK VULNERABLE
The drinks maker C&C is behind the well-known Magners and Bulmers brands. "C&C's significant exposure to Britain increases the profitability impact of movements in sterling against the euro," said Holohan.
The value of sterling has dived since the Brexit referendum and inflation is rising in Britain as a result. British consumer spending has being falling since the start of this year.
"We expect British consumer spending to continue to weaken [as Brexit progresses], providing a headwind for the cider and beer distributor," said Holohan.
The share price of the agri-services company is likely to suffer as Brexit progresses, according to Holohan. Brexit has created uncertainty about subsidies for British farmers - as well as the export markets which will be open to them.
"Given the uncertainty regarding British farmer incomes going forward, there is likely to be pressure on Origin's share price until there is greater clarity [about Brexit]," said Holohan.
As the builders' merchant and DIY group, Grafton, has big exposure to Britain, it is also likely to be vulnerable as Brexit rolls on - particularly if Britain slips into recession, said Donnelly.
Bank of Ireland
Brexit could put pressure on Bank of Ireland because of its significant operations in Northern Ireland and Britain. In particular, the weak sterling is a challenge for the bank because its British-based profits are worth less when converted into euro. "Bank of Ireland is less internationally diversified than some other Irish companies," said Dorner. This lack of an international edge could go against it.
SHARES THAT COULD GO EITHER WAY
The building materials group, CRH, could do well despite Brexit - because such a large part of its business is based in the US.
Trump has promised to "transform America's crumbling infrastructure" and CRH is the largest producer of asphalt, which is largely used to pave highways, in the US. However, the company's fortunes will depend on whether or not Trump lives up to his promises on infrastructure.
"There are a number of construction-related stocks such as CRH which have had a good run since Trump came on board but which may be susceptible in the short-term if his promises don't come true or take a while to be delivered," said Donnelly.
Although the Kerry Group has a significant business in Britain, the company said recently that it is well-positioned to deal with Brexit. "Given the global nature of Kerry's business, Brexit is a smaller issue for Kerry than it would be for some other Irish companies," said Donnelly. "Kerry has a lot of development going on in food ingredients. There's not massive growth going on here but it's sustainable."
Only time will tell how Kerry and the other Irish shares fare under Brexit. Investors need to be on their guard though.
"It's going to take time to see the full impact of Brexit on the economy," said Dorner. "Investors must avoid being complacent."
Sunday Indo Business