BUSINESS OPINION:As significant players delist from a struggling Anglesea Street, how well is it doing its job?
GREENCORE SHAREHOLDERS delivered another blow to the Irish Stock Exchange (ISE) earlier this month when they approved the takeover of British chilled foods group Uniq. As part of Greencore’s increased focus on Britain, it is moving its main market listing to the London Stock Exchange.
In a crumb of comfort for the Dublin market, Greencore chief executive Patrick Coveney said the food group would maintain a secondary listing here once the London move is completed in 2013.
The last three years of market and economic turmoil have not been kind to an exchange whose history dates back to 1793.
Earlier this month, Fyffes property spinout Balmoral International announced plans to delist from the junior markets in Dublin and London. Last year Boundary Capital and McInerney Homes delisted when they ran into trading difficulties.
Michael Buckley, chairman of industrial holdings group DCC, told shareholders at its agm last month that it is “actively monitoring” the possibility of moving its primary listing to London and switching its reporting currency to sterling.
Mexican cement giant Cemex is also said to be considering delisting its Irish building materials subsidiary Readymix.
And as part of the Government’s recapitalisation exercises at AIB and Irish Life Permanent, both institutions have delisted from the main market and are now quoted on the junior Enterprise Securities Market (ESM).
The issue for the ISE is that firms leaving its list are not being replaced. The few Irish firms that are considering initial public offerings – a group as diverse as packaging firm Ardagh and telecoms software maker Openet – are looking to Wall Street rather than Anglesea Street to raise funds.
Speaking to this newspaper last November, ISE chief executive Deirdre Somers was relatively sanguine about the proposed delistings of Greencore and McInerney, saying they reflected the economic climate.
“All markets are cyclical . . . companies will delist and relist at different times,” she said.
The ISE has been under pressure before. Between 1973 and 1986, when it was an outpost of the London Stock Exchange, there were no initial public offerings in Dublin.
The Irish Stock Exchange Limited is a company limited by guarantee of its members – ABN Amro, Bloxham Stockbrokers, Campbell O’Connor, Dolmen Stockbrokers, Goodbody, Davy and NCB Stockbrokers.
Its most recent accounts show it had a pretax profit of €5.5 million last year, down from €6.3 million in 2009. Revenue has stabilised in the last two years and came in at €20.5 million – a far cry from the glory days of 2007 when revenues were over €30 million. That year, about €200 billion worth of equities were traded in Dublin – compared to €50 billion last year.
Ironically, the accounts reveal the ISE has adopted a “conservative and liquid” approach to its own investments which are now primarily held in cash. Not exactly a ringing endorsement of equity investing.
Despite the more conservative approach, the ISE lost €161,000 on its investments in 2010, compared to income of €1.5 million in the prior year.
Although the accounts state that reduced staff costs were the main component of a €700,000 reduction in operating costs, the number of people employed at the ISE fell by just one to 87. Given total staff costs of €7.65 million, an average staff member is costing almost €88,000 in wages, social welfare and pension contributions.
Equity trading is not the whole story and, since gaining independence from the LSE, it has built up an international reputation as a significant listing centre for international fund and debt securities. The latest set of accounts, however, suggest it is no longer an engine of growth. Also the opportunity to diversify into listings of a range of derivatives would seem to have been missed.
Stock exchange operators globally have been going through a wave of consolidation in recent years. At the peak in 2007, Nasdaq acquired Nordic group OMX and had a bid for the LSE rebuffed while, for its part, the LSE swallowed up the Italian bourse.
While mergers and acquisitions ground to a halt in the 2008-2010 period, this year it resumed with Nasdaq making a bid for the New York Stock Exchange. This was blocked by regulators. Australian authorities also rejected a bid by the Singapore exchange for the ASX group.
Somers has always maintained that the ISE is not for sale, but the ownership structure and the fact that it depends on the technology platform of the Deutsche Börse, also preclude any takeover.
Clearly, the Irish Stock Exchange is fulfilling a valuable function for its members and staff – and even the exchequer, to which it paid corporation tax of almost €1 million in the last two years.
There is little doubt that an Irish listing and coverage from Irish brokers can give Dublin-listed firms a higher profile than if they were smaller players on a larger European exchange.
But with sources of capital a huge concern, now more than ever there are questions over whether in its current form the Irish Stock Exchange is best serving Irish business.
