Bank of Ireland shareholders endured a torrid time over the last few years. 2017 proved to be an uneventful year as the banks performance was underwhelming with some investors switching to AIB in the hope of better returns. BOI posted profits of €852 million last year, down 18% on 2016 figures.
As of March 2018, the consensus among analysts is neutral. Out of the 18 analysts polled by the Financial Times, 7 of them rated Bank of Ireland as a hold with the rest of the votes split evenly between the buy and sell option. The previous forecast was a lot more positive as the majority of analysts predicted the bank would outperform the market. Not surprisingly they were wrong! The price targets predicted ranged from €4.80 to a high of €9.30, with €7.95 as the median price. The median represents a 14.95% increase on the current share price of €6.92 on the ISEQ.
Reasons to Invest
- Overall public opinion on BOI has improved since Francesca McDonagh was appointed as CEO, taking over from the unlikable Richie Boucher.
- They are investing close to a billion euro in IT infrastructure to help cut costs, making the bank more cost efficient in the long run. This investment is badly needed as most of their technology is outdated.
- Bank of Ireland will start paying a dividend of 11.5 cent per share for the first time since the financial collapse. They were expected to start dividend payments in early 2017 but had to delay plans because of volatility in the size of its pension deficit. The dividend could represent a key catalyst in their turnaround and more funds will be looking to invest. BlackRock recently increased their holdings to take advantage of the fall in share prices.
- The bank has barely performed any asset write backs which is crazy once you consider the increase in the value of properties here.
- Ireland is one of the fastest growing economies in Europe with a 4% increase in GDP. An improving economy will positively impact the overall banking sector.
- Investec are promoting Bank of Ireland as of their top stocks picks for 2018. Investec are basically paid cheerleaders for the company and claim BOI will recover strongly.
Reasons Not to Invest
- Approximately 14,500 customers were impacted by the tracker mortgage scandal. BOI are working out a plan to compensate everyone affected. If the bank receives any more negative press in 2018 regarding more payouts to customers it will suppress share prices. The mis-selling of mortgages has done severe damage to their brand.
- BOI are heavily exposed to Brexit with the UK making up 40% of their loan book. AIB has less exposure to the UK and now own a bigger share of the mortgage market in Ireland. Traditionally AIB and BOI were neck and neck in terms of market share but AIB have recently gained some ground.
- Their investment in IT infrastructure could take 5-10 years before it has a noticeable impact. Investors will need a significant patience to buy and hold the company.
- The fintech revolution means BOI will have more competition and could lose customer deposits. N26, a mobile bank, is becoming extremely popular with Irish residents as they’re a great low-cost alternative.
How to Buy Bank of Ireland Shares
If you’re interested in purchasing shares I highly recommend using an online broker such as Degiro. They charge the cheapest commissions out of all the brokers in Ireland. E.g. if you buy €10,000 worth of BOI shares it cost only €6 in fees. On the other hand, it would cost €50 with Davys and €100 using Goodbody Stockbrokers.