Analysts at UBS, one of the investment banks that guaranteed the State's recent AIB share sale, have valued the Irish bank's €2.8 billion of stored-up losses that can be used to reduce its future tax bills at an 80 per cent discount.
The Swiss bank is among a number of firms involved in the June 23rd AIB flotation that have been free since late last week to issue investment reports on the bank.
In its report, published on Tuesday, UBS said it initially valued AIB’s so-called deferred tax assets, which the bank expects will take up to three decades to be used up, in “today’s money” at €1.1 billion. That reflects the impact of inflation on the nominal amount.
It then applied another large discount to those tax assets – to €500 million – to take into consideration that the bank’s ability to utilise the tax benefits is subject to political and regulatory risk. The UK, for example, has moved twice in the past two years to curb the ability of companies to shelter profits by utilising unused tax losses.
"The future is an uncertain place, plainly, and we think that the chances of legislative change to reduce the value of deferred tax assets held by banks are non-negligible," said UBS analysts Jason Napier and Charmsol Yoon in the report, in which they place a €4.80 price target on the stock.
“If we were to value the deferred tax assets at the €1.1 billion net present value . . . rather than €500 million, as is currently the case, our target price would increase from €4.80 to €5. We think our approach is appropriately prudent.”
The build-up of tax assets are a result of the bank’s €25.5 billion of losses between 2009 and 2013 as the bank took significant bad-loan charges in the midst of the State’s worst property market and economic crisis.
Market sources told The Irish Times in early June that a number of potential investors in AIB's initial public offering (IPO) were unwilling to fully pay up for the benefit of the deferred tax assets, given the risks involved. The Government went on to sell a 28.8 per cent stake in AIB, raising €3.4 billion, as the shares were priced in the IPO at €4.40 each.
UBS’s price target is the most conservative to be issued so far by analysts among a raft of banks involved in the IPO. The rest range between €5 and €5.30 per share.
Shares in AIB were trading at about €4.88 at close of business in Dublin on Tuesday.