The financial sector has seen decent gains over the last 12 months or so as the world’s major economies recover. With interest rates low, banks are able to borrow money cheaply and lend to businesses and the public, a key factor in the economic recuperation. The US economy has been the first and fastest to recover followed by the UK. The Eurozone has been lagging behind and this has been expected due to various countries being involved in the complex procedures and decisions required to ensure a stable recovery. With this in mind, in this article we take a look at Bank of Ireland (LSE ticker BKIR) as a possible medium to long term buy.
Ireland was one of the countries hit the hardest during the financial crisis, so what state is the country in now? Irish broker Goodbodys forecasts GDP in 2014 at 2.6% and 3.1% in 2015. They believe this will be led by a continued rebound in investment saying “Investment continues to be the key driver of the recovery. In Q4, investment (excluding planes) grew by 25%. This is the fastest rate of growth on record. Off a low base, we expect that strong growth will continue, led by a rebound in business investment and the ongoing recovery in the property market.” Employment growth has been impressive and continued outperformance in budget deficit targets provides scope to ease austerity measures for 2015.
Looking into the fundamentals of Bank of Ireland, the bank is set to return to profit this year after 5 or 6 years of losses. Revenue this year is expected to be around €2.9bn with pre-tax profit of €485m. Earnings per share is expected to be 1.03c which is then expected to more than double the following year, growing by 110% to 2.15c. Revenues and profits are expected to continue to increase out to 2017 forecasts where EPS is expected to be 3.50c, putting it on a forward PE of around 7.8, while the stock is also expected to have a 3% dividend yield by 31 December 2017.
Since the middle of 2013 shares have been changing hands from 15 cents up to a yearly high of around 37 cents at the end of March 2014. Since then a large seller entered the market and a general decline in the markets has seen the share price fall back to today’s price of around 27 cents. VTM believe’s at this price, BKIR offers value and we think that this recent decline provides a buying opportunity. Investors should consider buying with a medium to long term view based on the recovery in the country and the bank. We see upside of at least 40-50% over the next year or two.
