Bank of Ireland shares

Chuckie_Egg wrote: »

8 euro with 1 billion shares is an 8 billion euro market cap.
The Bank in a very very healthy position and getting better. We could see a share buy back program announced next year which would be better than a dividend imho.
So do you believe that one of the two major banks in Ireland could have a much higher market cap than the current one?

daheff wrote: »

There was a report on IT about BOI passing on negative interest to account holders with>1m in cash.

Can see an outflow of cash on this. Why leave money in B rated bank when you can leave it elsewhere in an A rated bank. At least with no interest there was a reason.

bankboucy wrote: »

In regard to Irish banks - everyone is fighting the last war.

This crisis is an income statement recession - the GFC was a balance sheet recession and the largest you and I are likely to see in our lifetimes. Household & Bank balance sheets were completely destroyed with negative equity, the negative wealth effects then hit incomes and credit was completely withdrawn from the economy as Irish banks were no longer able to source inter-bank capital meaning they desperately attempted (& failed) to rebuild their capital base by choking off the oxygen source that was fueling a large chunk of Ireland's GDP which was overly dependent on credit fueled construction related activities (the paradox of thrift writ large). Bank balance sheets then had limited shock absorbers and tangible book value was destroyed in the process wiping out existing shareholders. Bank's were on paper better businesses then (higher ROE) but they were inherently more leveraged and by extension more dangerous as any 2008 vintage BOI/AIB diluted shareholder found out. Ireland Inc. had stupidly tied itself to the banks such that every inch of fiscal space that could have been used to support the real economy with stimulus got pored into zombie banks & got locked up as regulatory capital on bank balance sheets - stagnant and un-lent. In short the Irish bank bailout had ‘no velocity’ in the real economy, zero in fact.

Irish/European bank's today are boring, don’t make as good returns but are orders of magnitude less likely to destroy shareholder equity. On the continent the profit pool for banks has shrunk so much that its clear that there is 2-3x the number of banks needed in most large European countries and consolidation is the only pathway to rational returns where banks earn at least their cost of capital over a cycle. In this one instance Ireland is a country from the future - unless people haven’t noticed, we already have a consolidated banking sector - AIB / BOI / Ulster - own about 70% of the mortgage market and near 90%+ of SME lending. Ulster seems ready to exit stage left too for those not following the news.

Today BOI is stuffed to gills with capital and not sh*tty overnight interbank capital, no boring 0% yielding current account customer deposits & negative yielding corporate deposits (+ some CoCo bonds). BOI has dealt with non-performing loans to a greater degree than most European/Irish banks with NPL exposure down to 4%. The loans they've written for the past 11 years I can assure you have been written to a very conservative standard under the watchful eye of the CBI/ECB & SSM. BOI's legacy culture of being Ireland's least likely underwriting bank team to 'reach' for deals persists (BOI ‘only’ joined the Anglo Irish bank / Celtic tiger madness fairly late..c.2006) and if there's one thing bank execs do well its self preservation and post GFC BOI was not going to be writing PoS loans as it, first fought for survival, then raced to get the government out off its shareholder registrar (Wilbur Ross / Prem Watsa say thanks). CET1 capital buffers are very large at BOI and currently a clear 5% over their new revised 9.27% regulatory minimum. ALOT!!! of bad things need to happen to get to breach regulatory levels and wipe out shareholder equity with dilutive capital raise. Look at the ECB/SSM stress tests to see what the banks have been built to ride out. People also don’t default on mortgages with 30-40% positive equity………..just doesn’t happen.

This crisis is terrible but it wont be enough to destroy book value of the Irish banks. In the last crisis billions of euros was pored into the black hole of balance sheets- the sovereign borrowing for this purpose did nothing to stimulate the real economy - it repaired bank balance sheets and never reached Joe Public’s wallet. Instead of Keynesian spending to boost the economy, austerity was imposed as all spare fiscal space was used to plug the holes in the banks we'd stupidly guaranteed. Rates weren't even at zero then (anyone remember the ECB raising rates in 2011?!!!?) The Irish economy is much more balanced this time - the FDI sectors we rely on should remain robust (Tech / Healthcare / Financial Services). AIB/BOI can actually lend through this crisis given the capital buffers they have - all very different than the last time. Ireland 2009 - 2014 was a financial wasteland mired in an internal devaluation & a deflationary bust. The government this time can, should and is borrowing at near zero rates to support damaged household incomes bridging them from the COVID to the post-COVID economy. Vaccines give us a timeline for this - Q3 2021 for mass vaccination and normal-ish economy. The EU via ECB will be accommodative and has done a fluffed Eurobond with federal like stimulus payments. The ECB will hoover up any bonds we print keeping nominal rates on new Irish borrowing at effective negative rates. State aids rules have been thrown out the window - the Irish government can and should support Irish SME’s robustly to bridge them to health (this includes helping them pay their loans!!). The credit guarantee scheme should see a situation arise where banks SME legacy loan book will be bailed out by new credit guarantee loans for businesses with a post-pandemic future (rightly so).

Now whats Bank of Ireland worth then today?????

In a post-Covid stabilized world of 0% interest rates & Eire growing GDP 2-3% a year. Lets call it Ireland 2022 to be safe (so negative earnings for BOI in 2020 & 2021). I’m going to repeat the write downs on H1 2020 c.700m, into H2 2020 & 2021…so a hit to equity of another c.2bn. Share holder equity of BOI in 2022 would likely be reduced to c.7bn then. Bank of Ireland can earn conservatively 8% on equity so about c.500 million a year in 2022. 50% retained/50% distributed to shareholders. Book will then grow c.3.x% a year in that scenario, so 2023 earnings 637m (7% on 9.1bn), 2024 = 659m, 2025 =682m, 2026 = 706m etc. Maths are super rough!. I'll leave terminal growth rate at 2%. DCF the earnings at a 10% risk free rate - banks are cyclical & don’t deserve a market multiple of 15x. Bank of Ireland's intrinsic value IMO is c.6 euro a share.

I could add in credit for future headcount/cost cuts once IT transformation is complete - but people are people and sacking colleagues/friends requires stomach European's in relatively small communities/markets like Ireland/Dublin don’t have. If real efficiency, branch closures and slashing and burning was done I'm positive RoTE could get up to 10%. Depends on how ambitious Francesca McDonough is and what her post-BOI ambitions are.

The other thing I gave BOI no credit for was the net present value of its carried forward losses from the GFC of c.1bn...have no doubt that is genuine asset sitting inside the bank for the next decade+….…the net present value of that could easily be 500m between friends. If you wanted to be aggressive you could back that out of the price you’re paying today for BOI maybe say its worth 0.59 a share alone.

Saw some folks a few threads back talk about challenger banks - for sure AIB/BOI need to wake up and realize the duopoly they’ve been re-handed in the Irish market is permanent only if they work at it…this needs to be done before a 3rd online digital player emerges with real scale I looked at Revolut/N26 and sorry they’re just not at the races in terms of deposits not even close……AIB/BOI are in a very privileged position collecting such low cost deposits from the Irish population and should immediately team up with PTSB/Ulster & create a cross institution instant payment app to kill revolut & stop Venmo or Square in the future. A digital only millennial sub-brand banking app of BOI should be looked at (Santander is doing something similar).

Finally think with Sinn Fein off the table for possibly the next 4.5 years. The big risk to the banks - Government meddling (this is why AIB imo is untouchable as an alternative investment given 90%+ ownership by the state and even the hints Sinn Fein might control it one day), is somewhat reduced, lets see how stable this coalition is…….the populist thing to do is to drive the banks into unprofitable lending & double down on repossession barriers/asset recourse…….I think Paschal Donohue + others in FF are pragmatic enough to understand that like it or lump it a functioning profitable market led banking system is key pillar of economic prosperity. Ireland already ran the experiment of what happens to an economy without a functioning prudent underwriting led banking system.

Lots of people on here trading BOI - I suggest not doing that - I’ve bought and held since 1.70………when its 20% off my conservative estimation of 6 euro per share intrinsic value (c.4.80) I’ll look again to see if my thesis is still in tact and only then consider my next move. Jumping in and out is a dangerous game - a true trader plugged into the ziegesit is a rare beast (Paul Tudor Jones & Stanley Druckenmiller come to mind)……I’d suggest most here aren’t traders. Big moves in stocks happen on tiny amounts of days......nobody can tell when exactly......but you can tell that over time a business earning 0.60c a share in a quasi-monopoly business with high barriers to entry in a western European democracy with good demographics can easily trade at x10 eps......or 6 euro......dont double guess it.

bankboucy wrote: »

Oh on the above - my pair trade with this is Glenveagh Properties @ 0.88.......BOI needs, mainly, homes to lend against.....GLV is the structural winner here....it is at scale the lowest cost producer of starter homes in the country (3,000 homes built/sold a year in 2023) it is worth in my opinion ~1.80 a share....3,000 homes at an average selling price of 320,000 = 960m gross revenue @ 20% profit margin = 192m -25m in central HQ/PLC costs = 167m......~150m net income after tax....GLV is currently trading at 5 times my 2023 target of ~150m net income & below the cost of the land it acquired three years ago.....crazy..........the government is hell bent on driving housing construction in the next three years......help to buy, shared equity etc etc. lower for longer rates......i see little reason what would stop Glenveagh reaching its enhanced IPO targets.

To be clear this pair trade is effectively a leveraged, in the case of BOI, bet on the Irish economy emerging from COIVD and continuing to deliver ~ 3% p/a growth

bankboucy wrote: »

Cairn is less aspirational around what they are trying to achieve in terms of being an at scale builder their aim is to top out at maybe ~1,400 homes per anum (vs. GLV at 3,000).....they bought their land bank earlier than Glenveagh did and it seems to me that capitalizing on this cheaper bank is their aim and its somewhat more short term and more modest in its aspirations.

While Glenveagh is putting the pieces in place to be the low cost provider of starter homes with at scale of ~3,000 homes in house production per anum:

Too see the long term nature you need to see that GLV is taking costs out of home construction in Ireland for the first time and vertically integrating certain functions - they've purchased their own infill quarry for the disposal of inert material.......they've invested in off site construction partners factories for timber frame homes.....they've invested in systems and technology to streamline and standardize the construction process across sites biometrics etc......their at scale purchasing power will allow them to contract for labor & materials at discounted rates vs. the spot market. Glenveagh more than Cairn has a philosophy driving what its doing and its slowly assembling the pieces it needs to be the structural winner in Ireland.

Their partnership division is a low capital cost hedge built in against the usually captial intensive nature of homebuilders, its take alot of time and investment to get it where it is today but this is a real differentiator vs Cairn - it is tendering on government contracts with Fingal CoCo recently selecting them to build a scheme in Donabate public/private development, the land development agency + other CoCo's will be able to leverage GLV's labor contracts/lower costs to deliver public housing on public lands way lower than any CoCo/LDA could (or other builder for that matter) and for this GLV will supply only its expertise/labor on a Cost+ basis. The knowledge/skill required for these public tender contracts is not easy. GLV has that muscle now and it will be hugely profitable part of the business that will drive its own captive home building business like a fly wheel (greater scale = lower costs = greater scale etc etc.). Cairn hasn't got this business or vision IMO.

GLV is being built for the long term and is sacrificing short term profitability to make key investments to position itself for the future. Buying GLV vs. Cairn is a no brainer.

Chuckie_Egg wrote: »

Anyone trading this, it has entered oversold territory again and now looks like we will see a third attempt to break the 5.30 resistance in the next few days. 5.80 is the next resistance.
I suspect that a catalyst in the form of a rating agency upgrade which seems overdue now. Currently Moodys is Baa2, and Standard & Poor's is BBB-, if these get upgraded then we will see a large influx of funds from pensions and investment funds which were locked out of investing due to the ratings, this would cause another rapid sharp move upwards in the share price.