Merrion sees ICG as €47m over-valued

Merrion Capital downgraded its stance on Irish Continental Group's stock and set a price target which suggests the Irish Ferries operator is €47 million overvalued by the market amid concerns about the impact of Brexit on its business.

Shares in the group were unchanged at €5.01 in early trading in Dublin, giving the group a market capitalisation of €943 million. However, Merrion Capital analyst Dylan Simmonds has set a €4.75 price objective on the stock and cut his rating to `hold' from `buy'.

“After upgrading the stock to `buy’ back in October...the stock has posted a solid return of roughly 21 per cent,” said Mr Simmonds. However, after ICG posted full-year results on Monday “we believe in the event of a `hard’ Brexit, ICG will be particularly exposed.”

ICG’s earnings before interest, tax, depreciation and amortisation (ebitda) rose 10.6 per cent to €83.5 million last year, as roll-on, roll-off (RoRo) freight volumes grew 5 per cent and container volumes rose 6 per cent and the number of cars carried on its ferries increased 3.3 per cent. However, passenger number declined 3.2 per cent.

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“The RoRo freight market slowed down in the second half of the year, albeit ICG continued to post 4.4 per cent volume growth,” said Mr Simmonds. “The continued macro-economic trends, coupled with our view for increased fuel prices in 2017, are concerning headwinds for the ferries division.”

The market value of ICG is exactly double the failed €471 million management buyout bid chief executive Eamonn Rothwell launched for the group exactly 10 years ago on Wednesday. It triggered an equally doomed rival bid from a consortium involving One51 and Cork-based Doyle shipping group. Developer Liam Carroll raised the prospect of a three-way battle when he amassed a 29 per cent stake in the company during 2017, initially through financial derivatives, known as contracts for difference (CFDs), that allowed him to build up his position anonymously.

Mr Carroll’s stake as sold off by his bank AIB in 2009, while One51 and the Doyles sold their combined 24 per cent stakes over the following three years at a loss. The 15.4 per cent stake belonging to Mr Rothwell (61) is currently worth about €145 million.