We are maintaining our Buy on Allied Irish Banks, p.l.c. (AIB), as well as our $60 price target as we consider the stock attractive at its current price. AIB is expected to report its first quarter trading update in early June.
We are continuing our 2008 diluted EPADS estimate at $6.20. This is in-line with AIB management guidance calling for low single-digit growth in earnings per share. AIB's results should benefit from solid loan growth offset, in part, by increasing loan impairment provisions from a very low level in 2007 and declining net interest margins due to slow deposit growth and increased competition.
AIB is clearly benefiting from an upturn in the Irish economy. The pickup in the economy (real GDP up 5.3% in 2007, 6% in 2006, 4.9% in each of 2005 and 2004, and 3.7% in 2003) has led to strong lending and deposit growth. As a result, AIB's operating profit in Ireland rose 11% in 2004, 21% in 2005, 24% in 2006, and 14% in 2007. Moreover, economic growth in Ireland is expected to continue strong, with the Irish economy estimated to grow by 3% (real GDP growth) in 2008 and an additional 4% in 2009 due to gains in domestic demand and net exports. This should support robust loan growth over the near term.
In its 2007 full-year report, AIB posted net income of 1.8 billion euro, up 14% from 2006's 1.6 billion euro, but modestly below our estimate due to a higher-than-expected tax rate. AIB just increased its annual dividend to 0.79 euro, or $2.26 per ADS. At it current price, AIB is trading at 7.6X the 2008 estimate and 7.6X the 2009 estimate, based upon consensus estimates for 2008 and 2009, respectively. These are well below the median P/E ratios for the industry, also based on consensus estimates.
AIB's growth prospects, estimated at 12% over the next few years, match that of the industry's, and its dividend yield exceeds the industry median by a wide margin. Our target price of $60 represents about a 9 ¾X P/E based on our 2008 estimate of $6.20 per share.
Read the full analyst report on AIB.
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