Allied Irish Banks, plc. (ADR) (AIB)

AIB is for me at this point, a somewhat "speculative" play. At least in the intermediate term. What I do like is the way the IRISH Govt is going about handling the situation. While they did buy common stock in the banks, they are proposing a "bad bank" format to buy at a discount ( believed to be in the 20-25% range) , the "toxic assets". which will allow the banks to free up assets to "revamp" lending. This will cause a hit to current share holders (but with "doubling down"), current holders can lower their starting point for future profits. It takes a longer term view to visualize this, and willingness to "sit tight" through the market gyrations which will undoubtedly ensue. A small position to start with, and then watching what unfolds, can position investors to reap big profits in time. Again, I would not "bet the ranch" on it, or invest the kids college fund, but placing a "reasonable" percentage of the money in your portfolio into AIB has a very good chance of "spicing up" your profits in the longer term. Not for those in search of a quick profit, or those who get all tied up in knots by the "prognostications of the pundificators", but for those willing to take the time to keep up with what is going on and make adjustments accordingly, I believe this is a good play. JMO and worth exactly what I am charging for it. As usual, there is real money behind my pick. The "sour pickle" in this barrel is the EU regulators. As members of the EU, the Irish Govt is not completely free to "dictate" the terms, but I expect them to fight hard to protect the banks because their plan is to hold the "toxic assets" and sell them off over the long term to recoup the taxpayers money. Sort of like the idea "Tiny Tim" and company were playing with, but in a more direct way.

Beautiful dividend over 8% and a dividend 5 Yr Growth Rate of 18%. P/E at 5 year low. Provides global diversification. The Motley fool have risked their own money on this and a Global Gains recommendation, at much higher prices than I am paying. Trading at 1.1 times tangible book value. CAPS 5 star rating. Did I mention I love dividends?

This stock has very interesting fundamentals. EPS as well as dividend higher than the stock price. Book value 20 time market value. Highly undervalued just because of panic. Bank in trouble never pays dividend and this bank is going to pay dividend in next two to three months. A bank from most strong european economy. I strongly bet on this stock.

Well run Irish Bank -- Expense ratio of 51% , selling for 6x 2009 earnings -- should get modest multiple expansion plus 5% dividend plus 10% growth in earnings over next 3 years - all assuming $/euro trades flat - any $ weakness would be a plus. Risks are obvious, but are outweighed by the above - BUY 2/21/08

Allied Irish Bank (AIB) is one of the big boys of Irish banking. They pretty much do it all: corporate banking, retail banking, investment banking, asset management,etc. This company got killed in the last year, losing about 80% of it's value. It reached a 52-week low of 72 cents back in March. It's yielding 40% and is still cheap on a P/BV basis. It's selling for 0.16 of price to book! It's also selling for far less than the cash on the books.

What are the risks? Well this company was involved in pretty much every frothy real estate market in the West, especially Ireland. It's still unclear if the all the damage has been done. Their Tier 1 capital ratio is about 7%, which indicates that it's wouldn't be in a great position to sustain further massive losses. For instance, a conservatively-financed bank like State Street (STT) has a tier 1 capital ratio of 13.5%. I would say that you ideally would want the bank to be 10% or above in this environment. Still, it all depends on your loan portfolio. They also need to raise a significant amount of money next year in order to further solidify their balance sheet. They may sell some American and Polish assets in order to do this.

The bottom line is that this is a speculative pick in the short-term, but long-term, unless you think that the Irish growth story is dead, should pay off handsomely for the patient investor.

Details on the upcoming recapitalization plan from irishtimes.com. AIB has agreed to this (I posted the full article on the AIB discussion board):

Under the new plan, which has yet to be signed off by the Cabinet, the Government will receive legal warrants entitling it to buy a 25 per cent equity or ordinary share interest in AIB and Bank of Ireland in five years’ time at their current low prices.

The banks will provide these warrants in return for an upfront State investment of €3.5 billion in preference share capital in each institution, shares which will carry an annual interest coupon of 8 per cent but no equity stake.

The Government hopes this will encourage existing investors in AIB and Bank of Ireland to participate in rights issues, as the ordinary share subscription rights carried by its warrants will fall to a minimum of about 15 per cent if the banks can raise new private capital and start to repay some of the Government’s preference shares.

This would reduce the impact on current shareholders of the Government investment in ordinary shares when its warrants are put into effect.

Lowest stock price in 5 years on top of significant growth over the same period. Lowest PE in at least 5 years. This stock is WAY undervalued:

PE = 3.5
Price to Book = 0.68
5-year dividend growth = 8.7%
5-year earnings growth = 15.64%

Dividend yield = 12.1% (!!!!!!)

Healthy bank. Healthy balance sheet. Growing markets. Conservative lending.

Even with slowing of growth going forward, this stock is a winner.

BACK UP THE TRUCK!

A great 5-star stock that is heavily undervalued at the moment. All of the caps members that have scored well with this picked to outperform have bought in at this price range. Buy now hold for a few years.

Comment 2/28/09

My banking and financial services picks were obviously mistimed, but from here only 1 of 2 things can happen. One, it outperforms because when the global economy picks up banks will outperform, just like they underperformed the market on the way down. Two, this bank is nationalized and it's toast. In ten years this stock will either be a market beater or a bad bad memory.

I put my real money into this stock and it has been last on my CAPS scorecard for some time now. I'm leaving it here forever as an investing lesson reminder to myself.

Very healthy growth, diversified markets, and one of a limited number of players in Irish banking. Despite the utter panic that seems to be gripping investors at the moment not every bank in the world will fail, and those that are healthier now will emerge even stronger (greater market share and fewer competitors) when the dust has settled. It could (it WILL) take some time for the financial mess to play itself out, so if you're looking for rapid gains this might not be the best investment, but long term I think this is a great place to put some money.

It seems that the Irish Government has the back of the countries major banks.
With that fears basically put aside Ireland's appeal to the business community with its very favorable corporate tax structure coupled with the fact that it offers major corporations a solid gateway into other EU markets this one is a long term hold that should recover nicely as the economy does.

Their extensive central European operations will allow them to profit handsomely from enterprises such as the manufacturing of screen doors for submarines, parachutes that open on impact, solar powered flashlights, and downhill waterskiis. In addition, they own a sizeable stake in a tech firm that is on the brink of discovering a recipie for ice cubes.

4-star stock go down, 4 star stock must go up. Did I mention the dividend? Take a look at that. The stock is under $2! Talk about a 10 bagger. I’m breaking open my piggy bank to buy all I can of this one.

Ireland has said it will support its largest banks without nationalizing them. When all of this banking crisis is over, AIB will stil be doing business as usual...I just think this is too cheap right now to pass up.

Solid bank trading at 0.6x book value. It trades there because people are lumping it in with the US investment banks and there is a big worry about the Irish economy turning and the Irish housing bubble bursting.

Both of the latter will likely happen, but the important things are that even so, the impact won't be that bad - a 30-40% fall in housing prices would result in only 0.8% of charge-offs next year. And management has been very conservative in their lending assumptions, unlike the US banks. Loan to values were much less than 100%, allowing the company to absorb a fall in home prices.

To sum up: this bank trades at the same prices as the beleaguered US ones, but is more conservative and has very little of the capital markets craziness. Even if the Irish economy tanks, this bank is still ridiculously cheap and is at least a double from here in a few years (or sooner).

This bank should be avoided. If it even survives it will be several years before you see any sort of return.

I'll be the first to admit: I don't know much about banks or how to value their stock. So, this is undoubtedly going to be a learning experience for me. With that said, I think AIB stands a very good chance at beating the market over the next 3 years. Presently, CAPS has it rated as a 5-star stock with 3-year growth rates for Revenue, EPS and Dividends of 23%, 44%, and 10%, respectively. All very nice numbers. AIB seems to be one of the least-battered financial stocks as well, having apparently kept its nose clean of the US sub-prime housing meltdown. Being an international stock (and less tied to US banking woes), that's not surprising. But it makes for a good defensive play as we head into the recession that will be Year 2008.
The numbers that I see on Yahoo! Finance also impress me: Trailing and Forward PEs of only 6.5 & 7.2, an incredibly low 0.40 PEG ratio, as well as low Price/Sales and Price/Book values of 4.1 and 2.25 (the latter is more impressive and quantitatively valuable). Currently, its Profit & Operating Margins are at 40% (24.4% as shown on CAPS Research pages) and 52%, respectively, while its Quarterly Revenue Growth is at 11.6%, and RoE is a healthy 25%. A not-so-good point: RoA is a very slim 1.3%, but I expect this last number to grow over the next few years. What I really like about Allied Irish Banks is that its current price ($45.78) has been pushed down to a two-year nadir, recently moving up from that low point of $39. So low, in fact, that its Revenue/MarketCap ratio is now a very high 40%. By contrast, its larger competitor HSBC Holdings (symbol=HBC) has a higher PE (12.1 vs. 7.2), higher Debt/Equity (2.22 vs 1.48), much lower Profit Margin (14.1% vs. 24.4%), lower RoE (13.2% vs. 25%), and is likewise similarly depressed, all for good reason. Its Revenue/MarketCap ratio, by comparison, is only about 25%. All of these numbers mean that AIB is more effective at generating earnings than is HBC. Plus, AIB has nearly as much Cash/Share (sum of its assets?) as the share price itself. So, there seems to be little downside risk for AIB. But then, I don't know much about rating bank stocks. A cautious thumbs up for the longer haul...

NOTE: The Bank of Ireland (symbol=IRE) has a smaller Quarterly Rev.Growth (10.3%), smaller Operating Margins (32%), but a similar PEG (0.38), and similar management effectiveness ratios. I think it too will do well over the next 3 years.

Sources: Yahoo! Finance and CAPS Research pages.

Aye, me lucky charms not working for #$@&, me lad!

oversold bigtime on fear, in the long run, I think it has more than a 50% chance to be a multibagger on the cheap