Bank of Ireland - undervalued?

Sleepy

Can anyone explain the massive drop in BOI share price?

They're relatively highly capitalized so somewhat shielded from the current credit crunch and reported good profits (although somewhat based on cost-cutting measures) so a closing price of €6.41 yesterday would seem very low to me when 18 - 24 months ago the same shares peaked over €18.

Any opinions?

Ice_Box

The've been dropping again because people believe there may be a few intrest rate increases on the cards and that will effect their mortgage business.

Also citygroup downgraded the share to 'sell' last week...

"LONDON (Thomson Financial) - Citigroup has downgraded Anglo Irish Bank and Bank of Ireland to 'sell' from 'hold' with price target cuts to 6.7 euros from 9.5 euros and 6.6 euros from 9.0 euros respectively in an Irish banking review, market sources said.

In a note published this morning, Citigroup said credit quality deterioration threatens earnings and tangible book value in the Irish banking sector.

The broker added that in this difficult environment, it expects earnings to fall in the Irish banking sector and has cut its 2009 earnings per share forecasts by 31 percent for Bank of Ireland, 18 percent for Anglo Irish Bank.

Citigroup said Anglo Irish Bank is the most exposed with 80 percent of its loan book secured against UK or Irish property.

It said Bank of Ireland is also highly exposed with 71 percent of its loan book although this includes significant residential mortgage exposure, including a large and growing buy-to-let book in the UK.

Elsewhere, Citigroup retained its 'hold' rating on Allied Irish Banks as it is the best diversified of the three banks, albeit with a target price cut to 11.6 euros from 14.5 euros.

The broker has also reduced its 2009 earning per share forecasts by 7 percent for the group."

Sleepy

Even with a reduced earning potential it still seems to me that there's no way the organisation is worth a third of it's value two years ago!

Seems kind of ripe for a take-over if there are any banks out there still looking to expand.

You are assuming of course, that it price was fair value three years ago.

phanteon

Hi I bought Bank of Ireland shares a few months ago when a lot of advisors said they were great value. They cost 10 Euro a share.

Now the price is 6.40.

My question is could the price fall much further like say to 2 or 3 Euro?

dunkamania

Sleepy wrote: »

Even with a reduced earning potential it still seems to me that there's no way the organisation is worth a third of it's value two years ago!

Seems kind of ripe for a take-over if there are any banks out there still looking to expand.

Its more than reduced earning potential, dividend concerns, impairments concerns, rising interest environment, vulnerable economy, funding concerns, etc.

BOI is unattractive as a takeover target as only Asian banks have the ability to acquire, and buying BOI is hard to justify to your own shareholders given current market perception towards Irish banks/economy. Also buying an Irish bank gives you exposure to Ireland/UK while the mainland banks tend to have broader geographic operations.

dunkamania

phanteon wrote: »

Hi I bought Bank of Ireland shares a few months ago when a lot of advisors said they were great value. They cost 10 Euro a share.

Now the price is 6.40.

My question is could the price fall much further like say to 2 or 3 Euro?

Prices will fall as long as their are more sellers than buyers, so yes.
Halving from here is unlikely but not improbable.

Idu

Undervalued now, overvalued then. Their true price probably lies somewhere in the middle but with the lack of confidence in the financial sector these days its not suprising to see their stock so low

How did you reach the value of their 'true price'?

Idu

well if it was overvalued and then undervalued then the true price(or value) would be in the middle.

If you're hinting at the fact that their current price is their true price then fair enough I agree. I was talking more in terms of the overall value of the company because as the OP said they are pretty well covered in terms of sub-prime write downs. I think their current market price is sentiment driven rather than any fundamental problems for the company

janets_on_clubs

janets_on_clubs wrote: »

well if it was overvalued and then undervalued then the true price(or value) would be in the middle.

If you're hinting at the fact that their current price is their true price then fair enough I agree. I was talking more in terms of the overall value of the company because as the OP said they are pretty well covered in terms of sub-prime write downs. I think their current market price is sentiment driven rather than any fundamental problems for the company

I am not hinting anything.

I just love the way people 'know' the true prices. Everyone is an award winning analyst these days.

ircoha

Ice_Box wrote: »

The've been dropping again because people believe there may be a few intrest rate increases on the cards and that will effect their mortgage business.

Also citygroup downgraded the share to 'sell' last week...

"LONDON (Thomson Financial) - Citigroup has downgraded Anglo Irish Bank and Bank of Ireland to 'sell' from 'hold' with price target cuts to 6.7 euros from 9.5 euros and 6.6 euros from 9.0 euros respectively in an Irish banking review, market sources said.

In a note published this morning, Citigroup said credit quality deterioration threatens earnings and tangible book value in the Irish banking sector.

The broker added that in this difficult environment, it expects earnings to fall in the Irish banking sector and has cut its 2009 earnings per share forecasts by 31 percent for Bank of Ireland, 18 percent for Anglo Irish Bank.

Citigroup said Anglo Irish Bank is the most exposed with 80 percent of its loan book secured against UK or Irish property.

It said Bank of Ireland is also highly exposed with 71 percent of its loan book although this includes significant residential mortgage exposure, including a large and growing buy-to-let book in the UK.

Elsewhere, Citigroup retained its 'hold' rating on Allied Irish Banks as it is the best diversified of the three banks, albeit with a target price cut to 11.6 euros from 14.5 euros.

The broker has also reduced its 2009 earning per share forecasts by 7 percent for the group."

Banks rating other banks in the current climate is a joke, parrticularly when you write off 20bn dollars in your own books.

These new ratings from Citi are driven by the new mid-east investors, SWF's, who want to drive down asset values world wide and then use the profits from 150$ a barrel to buy up large tracts of EU assets and thus control the EU going forward
SWF http://en.wikipedia.org/wiki/Sovereign_wealth_fund

silverharp

I am currently shorting the US financials so I maybe talking my book, but the credit crises has a long way to go, as such the banks here have not seen defaults yet so see what happens when they kick in, the UK and Ireland are a year or 2 behind the US so now is not the time to be buying.

dunkamania

For Irish banks its funding issues which are squeezing margins more than asset quality.

silverharp

not related to BOI but very funny
From a banking analyst, to remain nameless, seems he woke up on the wrong side of the bed





Good Week for the market? Nope, actually, NOT GOOD at all - look...

Monday....

NYSE.........95 new highs........89 new lows
OTC...........89 new highs ......102 new lows

Tuesday....

NYSE ...... 36 new highs......168 new lows
OTC......... 15 new highs..... 154 new lows.......NEW LOWS EXPANSION.....????????!!!!

See that? See the DETERIORA-ROTATION IN THE MARKET?

***Yesterday, Tuesday was an awful day technically as the overall averaged declined quite a bit, masked by the fact that a few of the DOW stocks had good days. So many that thought yesterday was an ok day for the market - missed in reality, the broad sell-off that was going on. At one time yesterday the DOW (just 30 stocks) was up 70 points and the NYSE COMPOSITE (all NYSE STOCKS!!) was down 91 points.

And now - look at these numbers - the NEW LOWS ARE EXPANDING - and the new highs are shrinking - thus, for a first time in a long time - the NEW LOWS #'s are getting worrisome. In fact when you read the WSJ on Thursday you are very likely to see a LARGE expansion in the # of new lows over today....

HERE ARE THE REALLY, REALLY BAD BOYS - YOU STILL NEED TO AVOID THEM....
WHERE IS THE BOTTOM? HERE ARE MY GUESSES and remember, even after the bottom - most of these will be MAUDLIN performers for ...well, how about forever?


C............................$15 - need more capital, more write-offs to come. Rubin quieter than ever - only see him on milk cartons these days.

MER......................$25k - MER will survives just fine, but they will never be what they used to be. MER is like Kresge's before they became K-MART. NOTE TO JOHN THAIN: There are not enough stupid/young people left that are willing to pay FULL SERVICE TO A BROKER - or fall for the idiocy/charges of many "WRAP" programs that basically charge the customer twice what he/she SHOULD pay for. Not that many dumb people left to sell that too!! There are about 2 accounts going out the door these days at MER, for every 1 (NEW) account coming in. This is going to hurt, and like I said, MER will survive - but I'll bet you the next 10 years will be maudlin to down for the stock.

BAC......................$20 - so Ken, baby, hows that CFC deal lookin' now huh? When you went looking at CFC last year and started kicking the tires your stock was in the $80 area, how much have you blown already? Today BAC is struggling to reach $30 a 70% drop!!! If Lewis is wise, he will drop the CFC deal - if not, BAC will be to the street for money early and often.

WB........................$15 - floating along with no leaders in sight, the ship lists, and what is Wachovia? I dunno - do you?

LEH.......................$20 - I have nothing against women execs - and there are many good one's - so I dont' want woman to take this personally, but the lady CFO at LEH - just ain't up to the job and she has been thrust into an arena she barely understands. She is saying ALL THE WRONG THINGS. By the way - for all of you that just ponied up for that $28.00 LEH stocksecondary a few days back - well, you are down a quick 10% - how's that feel? Sad huh? Well,you listened to her- and what did she say...?

***I don't want to talk about survival or credit risk - that is over (SHE'S WRONG!!)
***We don't need no more stinkin' money (SHE'S WRONG)
***We don't and won't/need to delever anymore (SHE'S WRONG - tragically wrong) - everywhere you look in AMERICA corporations and especially FINANCIALS are delevering - and LEH is not? Nope, she is wrong, wrong wrong.
***She is making the tragic mistake of being BEHIND the problem 'curve'...instead of getting ahead of it. In March she was saying they wouldn't need money - wrong. In April and May she was saying the same thing and now she is still at it - NOT GOOD FOR LEH. FULD seems to have slipped into the twilight zone that Schwartz/AT Bear fell into and that is very dangerous too. Somebody at LEH needs to wake up.

****I wonder who Joe Kiernan believes now - Einhorn or Fuld? Anyone?

FITB......................$15 - sad to see this fine old bank go to seed, but it is apparent that something has been MORE ROTTEN IN CINCINNATI than anyone suspected - probably cut the dividend in 1/2 very soon.

KEY......................$10 - just another wrong bank that followed the crowd and now suffers the reality.

CMA.....................$25 - they couldn't stay in Detroit and survive (by the way- how many Banking HQ's have moved out of DETWA in the last 20 years - anyone? 3, 4, 5? Anyone know what that portends...when banks leave your city?)....and the move to Dallas has been bumpy, and right now they need money.

LYG.....................$15 - as I told you 3 weeks ago (that was 10 points ago!!)...this may be a very juicy/liquid short. The old sotts at LYG have been snoozing for years and now they are behind the recognition/of garbage/ parade - look for hefty writedowns here.

AIG......................$30 - remember when I told you to sell AIG and it was going to $30? Well, it's almost there - that sell at 45, 47, or 50 looks pretty good right now huh? Sometimes swallowing your pride and moving on is the best/thing to do and this is the case here. NEVER LET YOUR EGO OVERIDE YOUR GOOD JUDGEMENT.

BCS.....................$15 - they trusted the American banks.....what was that / that Otter said to Flounder in "ANIMAL HOUSE"

" Otter: You screwed up, you trusted us!! " .....yep, and BCS trused Citi, and Goldman and LEH and they bought all their cement bricks they now call "LEVEL 3".

UBS.....................$15 - of all the International banks - these gusy may be in the deepest goo-of all

STI.......................$30 - once these guys get rid of the current mgt. team and in a year or so get their act together, we may want to watch this one because STI actually has POTENTIAL for branch growth and has good geographic locations. Lets keep an eye on this one there is hope here.


***WAMU (WM) is probably worth zero - I don't care if some hedge fund (stupidly) invested a bunch of money - heck these guys already are down like 40% on an investment that is what - 35 days old? IT'S HARD TO LOSE MONEY THAT FAST - EVEN AT THE TRACK!!! Look at all the money they have 'thrown' at this black hole and WM survival still in doubt.



Remember the "DEAD BANK WALKING LIST"

LOOK AT THE DROP IN SOME OF THESE STOCKS IN JUST THE FIRST 8 TRADING DAYS OF THIS MONTH!!!

Name...........................................................price May 29th........................price-mid-dayJune 11th

1. Americanwest (AWBC)........................... $3.20........................................ $2.94 ........... down 9%
2. Capital South Bank (CAPB).................... $4.02........................................ $2.21............ down 44%
3. Citizens Banking Corp. (CRBC)............. $5.66....................................... $3.40............ down 40%
4. Downey S&L (DSL)................................. $5.50....................................... $4.68........... down 17%
5. Flagstar (FBC)......................................... $4.80....................................... $3.98........... down 19%
6. First Horizon Financial (FHN)................ $10.09...................................... $8.58........... down 14%
7. IndyMac (IMB)......................................... $2.07...................................... $1.82........... down 11%
8. Irwin Financial (IFC)............................... $4.14...................................... $4.06........... FLAT
9. South Financial Group (TSFG)............. $5.80....................................... $4.94............ down 18%
10. UCBH Holdings (UCBH)......................... $4.90....................................... $3.22........... down 38%

See the carnage here? 8 trading days - this group together is down about 20%....8 trading days!!!

THE MEDIA, AS USUAL, HAS NO CLUE WHAT IS GOING ON - BUT IN THE NEXT 6 MONTHS WE ARE GOING TO SEE HUGE BANK UPHEAVALS - AND A 'MINI-REPLAY' OF THE EARLY 1990'S - it's coming - it's the way it is - but the media will treat it like Armageddon - so be prepared.

We will see what affect it has on the markets - another 10% drop - or a test of the lows at least sounds likely - so be prepared.

justfortherecor

Will Irish banks ever see the same level of profitability as they witnessed a few years ago?
They're not hot property anymore, analysts are not too keen on them.

daheff

somebody asked how to value the banks...a very crude method would be to look at the net asset value (NAV) per share of the bank vs the price per share in the market...if NAV per share is higher then the bank is underpriced (buying bank and breaking it up for resale should be profitable)


according to BBerg the book value/share (not quite NAV/share but close) of BKIR ID is 6.613 ..current trading price is 7.09. On 6/11 it was 6.37

this would indicate that BOI is close to market pricing it at book value....which pretty much means that the market doesnt see much growth/profit potential for BOI

TheBazman

What is going on at the moment is that all financials are getting hit - all being tarred with the same brush. While some of this is justified as most banks are net borrowers of liquidity there are certainly differences. BOI began underperforming when some negative news came out about Bradford and Bingley. Because they have a lot of buy to let UK mortgages, as do BOI, the stocks fell.

This is only part of the equation - the funding crisis is hitting all financials as the cost of interbank funding goes higher. There has been a big lag whereby mortgage rates have only begun recently to move higher, therefore margins getting squeezed. Also there is a lot of suspicion around the larger investment banks as to how much more writedowns they have to take because of downgrades etc. BOI have little to no exposure to the instruments that are getting written down but still they suffer on the back of it.

Also the domestic mortgage market is a problem as the ECB are going to be rising rates just when lower rates would suit Ireland. Still if you analyse the balance sheets of the larger Irish banks they are quite healthy and could take massive loan losses before it would have a meaningful impact on profitability.

When it comes down to it these things move in cycles like the economy itself and if you can have a long term view 5+ years I think the likes of BOI, AIB, RBS etc are a screaming buy. Shorter term... you could be in for a rough ride

dunkamania

daheff wrote: »

somebody asked how to value the banks...a very crude method would be to look at the net asset value (NAV) per share of the bank vs the price per share in the market...if NAV per share is higher then the bank is underpriced (buying bank and breaking it up for resale should be profitable)

Be careful with NAV's, if they are declining than assets can look more attractive than they actually are.

shnaek

BOI down below €6 this morning. Is there any good news for BOI coming down the tracks, or are they set to languish at this value (or lower!) for a while yet? If you had a spread on these guys, would you close it?

TheBazman

shnaek wrote: »

BOI down below €6 this morning. Is there any good news for BOI coming down the tracks, or are they set to languish at this value (or lower!) for a while yet? If you had a spread on these guys, would you close it?

Again it is a view on banking stocks as a whole not just BOI. Yesterday Lehmans were down 6%, Morgan Stanley -3%, Bank of America -4.5%. This morning BOI -3%, AIB -3%, Anglo -3%

docker

I also though BOI couldn't fall much lower, however looking at HBOS current price of 265 v high of 1175 18 months ago it shows the scale of what is happening !!

Genco

Down by in excess of 8% today at €5.37 :eek:

phanteon

How low could the share price go?

phanteon

How low could the share price go?

Would they be good value at 5 Euro?

shnaek

Looks like they could run low for a while ahead, unless news comes out that some trader has been pushing them low in order to make money going short on them. They'll be meeting this day week anyways, so we'll hear what they have to say.

oilsheik

UK institutions were told to back off on their shorting of UK banks so they have turned their attention to the Irish banks. There alot of negative sentiment out there, S&P issued a report yesterday cutting its outlook on AIB and BOI to stable from positive - there should be no surprises there the reason given was that "scope for an upgrade within the outlook timeframe is not unlikely" the current ratings on both banks were affirmed.

justfortherecor

BOI a potential candidate for a takeover soon?

pocketdooz

How low can they go ?

Would they be good value at €5 ?

---

You cannot ask these questions . . . they can go to zero or close to it (northern rock, barings bank, worldcom, enron, Refco - will i go on ???)

No, they would not be good value at €5 if they subsequently fall to €4. The dangerous thing about buying stocks at lower valuations is that each additional price decrease if relatively worse for your holding (i.e. drop from €18 to €17 is about 5%, drop from €6 to €5 is abot 17%

Bank of Ireland are a good LONG TERM investment at their present valuation. Long term is ambiguous though as it could be 2/3/5 years before we see a full turn around.

That's why it's called speculation.

Anglo will be gone by the end of next year, either merged or taken over. Their cap. is too small, they do not have the govt/cultural links that AIB / BOI have and nearly all of their loan book is collateralised against Irish and UK property. They need cash and they need it fast (why do you think they are offering 8 % on savings accounts, etc.)

Buy AIB and BOI - but think of them as a 5 / 10 year investment.

I am not a CFA - have gone long AIB / BOI calls and this is my own opinion.

pocketdooz

justfortherecor wrote: »

BOI a potential candidate for a takeover soon?

no, there are no banks that would touch it right now. Although their cap. is small (c. €5 B if I remember right) - there are no banks willing to take on their committed loans in the current market.

Also, there are no banks with that kind of cash lying around that don't want it in case they need to shore up their BS soon. Case in point is RBS's recent calamity of a takeover of ABN, which forced them into a rights issue.

The only people who can afford to takeover BOI now are the soveriegn wealth funds and they have much better global opportunities than BOI

shnaek

True, although it appears there's an interest in their UK business:

http://www.reuters.com/article/rbssConsumerFinancialServices/idUSL0614887320080706

stepbar

shnaek wrote: »

True, although it appears there's an interest in their UK business:

http://www.reuters.com/article/rbssConsumerFinancialServices/idUSL0614887320080706

At present market value, a price range of 800mil - 1.4bil would be good value for the BOI.

Genco

Market Cap of BOI after this mornings falls:

Irish Life and P €1.36bn
Anglo Irish €3.80bn
Bank of Ireland €4.53bn
AIB €7.22bn

TheAlbert

Irrelevant but funny trivia:

Market Cap of Tullow= Market Cap of BOI & Anglo put together!

zod

what do people think ? Will Bank of Ireland rally on Monday (14 July) or continue to fall ?

BendiBus

Considering developments Stateside after Fridays close, I wouldn't be optimistic for the opening tomorrow.

pocketdooz

zod wrote: »

what do people think ? Will Bank of Ireland rally on Monday (14 July) or continue to fall ?

There will be huge volatility in the market over the coming months. I would not invest now. The shares are in free fall

If Fannie Mae or Freddie Mac in the US have to get supported my the Govt you will see a huge knock on effect in Europe and the cost of borrowing funds will increase even more.

in my opinion stay away from bank stocks for the moment.

it is possible (some might say likely) that one of the big four in Ireland will go under / merge / get taken over in the next 18 months (AIB - doubtful, BOI - less doubtful, Anglo - quite likely)

Shambodie

LOL... reading the first comment 2 years on, I have to say I found it quite amusing, the beginning of the end. I would however they are quite attractive now around €0.84, solid 5 year investment right there I think?

alex73

Sleepy wrote: »

Can anyone explain the massive drop in BOI share price?

Someone who knows about BOI said they won't post profits for several years. This the fall in S. Price.

mikerockfield

Shambodie wrote: »

LOL... reading the first comment 2 years on, I have to say I found it quite amusing, the beginning of the end. I would however they are quite attractive now around €0.84, solid 5 year investment right there I think?

I would have to agree at this price a 5-10 year investment could pay nicely, they will not post profits for many years yet, but i feel they will slowly but surely get back on their feet (with the help of the taxpayer of course!!)

Shauny2010

mikerockfield wrote: »

I would have to agree at this price a 5-10 year investment could pay nicely, they will not post profits for many years yet, but i feel they will slowly but surely get back on their feet (with the help of the taxpayer of course!!)

5 to 10 year investment!!!! you don't know what will happen with the share price in the next 5 days never mind 5 years.