Hibernian concerned over Aer Lingus share price

The Government may have missed the best time to float Aer Lingus as it did with TSB and ACC, a leading fund manager has warned.

Hibernian Investment Managers, the asset management arm of the Hibernian Group, has said it will not queue to purchase shares in Aer Lingus unless the share price is a lot lower than anticipated.

Mr Bernard Swords, head of equities, said Hibernian would not buy shares when the State-owned airline is floated on the stock market later this year unless the price was "very low".

The company believes the outlook for airlines is bleak given a combination of rising oil prices, falling fares and increased competition. "Oil prices are 150 per cent above the lows of late 1998 and on average over 50 per cent higher on the year," said Mr Swords.

He also noted that recent US airline results had been below market expectations and this would have a knock-on effect on market sentiment towards the flotation of a small, national airline such as Aer Lingus. Mr Swords believes Aer Lingus is likely to be worth around £300 million (€380 million), well below initial estimates which put a value of £600 million on the airline.

However, Hibernian would be more positive towards acquiring a stake in Aer Rianta if it is floated down the line, because of its exposure to retail spending. Meanwhile, Hibernian believes the next few weeks will prove decisive for Eircom.

"The short-term outlook for the Eircom share price will be dictated by whether the company finds a buyer for the KPN stake," Mr Swords says. "If it does, then the share price could go as high as €5. If not, then the shares could find their own level on the stock market, with major institutions unlikely to want to pay more than €3.50."

Hibernian is advising investors to take the risk and hang onto their Eircom shares in the hope that a buyer is found for the stake. The fund manager has already reduced the Eircom weighting in its global telecoms fund to 7 per cent from 15 per cent, but plans to maintain it at that level.

Hibernian is favourably disposed towards Smurfit, CRH and Independent Newspapers while it also likes secondline stocks with strong market positions such as Grafton, Irish Continental Group, Kingspan and Heiton.

On the banks, which have suffered badly of late, Hibernian says it expects a bounce in their share prices later this year, although it does not anticipate that they will regain last year's highs.

The company also remains optimistic about the outlook for the technology sector and does not believe it is a bubble waiting to burst.

"HIM subscribe to the theory that an information revolution is under way which will continue to alter the way business and commerce is conducted," the fund manager says.

Among its preferred sectors are communications equipment, where it favours stocks like Cisco, Oracle and Nokia, and software, although it believes that personal computer manufacturers such as Dell, Compaq and IBM may find the going tough.

The company, whose specialist global telecoms fund has performed well since its launch last summer, is working on a new technology fund which it hopes to bring to the market "fairly soon", according to Hibernian portfolio manager, Mr Dara Fitzgerald.