Bank of Ireland Upped to Hold

We are raising our rating to Hold from Sell on The Governor and Company of the Bank of Ireland (IRE - Analyst Report) as we believe the stock price incorporates a significant amount of bad news.

In its first half report (September 30), Bank of Ireland [BOI] posted net earnings before nonrecurring items of 542 million, below our estimate due to increased impairment provisions. Furthermore, BOI raised its estimate of future loan losses to 60-75 basis points for 2009 (from 35-45 basis points only two months ago) and to 90-110 basis points for 2010 (from 60-90 basis points). As a result, we are slashing our 2009 fiscal year (March 31) EPADS estimate to $3.80 from $7.48 and to $0.30 from $4.60 for 2010.

Given rapid deterioration in the loan portfolio, it is likely that losses could increase further. BOI eliminated the dividend for 2009 and does not expect to resume them until economic conditions improve. It is possible that the company may need to raise additional equity to strengthen capital ratios in the future, thereby diluting existing shareholder interests.

At its current price, BOI is trading at 1.1X the 2009 estimate, based upon consensus estimates. This is well below the median P/E ratios for the industry, also based on consensus estimates. With the stock trading at 0.3X book value, we believe the downside is already reflected in the share price. We are reducing our target price to $6.75, which represents about a 2X P/E based on our 2010 estimate of $3.80 per share.

Read the full analyst report on IRE

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