Cantillon: Dividends at last from an Irish bank?

Research reports in recent days on Bank of Ireland and PermanentTSB by Goodbody Stockbrokers' analyst Eamonn Hughes were a signal that interim results season is almost upon us.

PTSB will be first up on Wednesday followed by Royal Bank of Scotland and, by extension, Ulster Bank on Thursday, and Bank of Ireland on Friday. AIB will follow in early August.

Hughes initiated coverage of PTSB this week following the bank's recent capital raising and return to the main market of the Irish Stock Exchange. He's started with a "hold" recommendation and €4.80 price target.

This seems on the low side given that the stock closed yesterday at €5.069, down 2.7 per cent. It has closed as high as €5.34 recently.

Hughes has pencilled in a loss of €430 million for PTSB for the first half of the year but estimates it will be at breakeven when exceptionals are stripped out.

Various asset disposals are likely to leave PTSB loss-making to the tune of €733 million for the full year, he adds, although it could achieve a €25 million profit at the pre-provision level.

Hughes forecasts a return to net profits in 2016 of €105 million, which will no doubt be music to the ears of the Minister for Finance Michael Noonan given that the State has a 75 per cent shareholding in the bank.

On Bank of Ireland, Hughes has maintained a “buy” recommendation with a 42 cent share price target. Bank of Ireland closed in Dublin yesterday at 38.4 cent.

Hughes forecasts net income for the first half of the year of €462 million – a year ago it was €344 million.

“We have pencilled in a 2.25 per cent margin, up modestly from the 2.22 per cent reported in Q4 2014. However, the main year-on-year change is a more than halving of the bad debt charge, with our €180 million estimate incorporating a 2 percentage points improvement in the house price index in the period,” he said.

He predicts Bank of Ireland’s “pension deficit headwinds” are set to ease, which could help its capital base and bring dividends back into view for the second half of 2016. Imagine . . . an Irish bank paying a dividend. Life must be getting back to normal in the financial sector.