Shares in AIB may have soared as much as 55 per cent to a post-financial-crash high of €10.75 since the Government sold its remaining 2 per cent stake in the bank 12 months ago for €305.3 million. But the stock has drifted about 4.5 per cent lower in the past two weeks amid concerns that it may have got ahead of itself.
The consensus 12-month price target for the stock currently stands at €10.63, offering just 3.5 per cent upside from where it is currently changing hands.
RBC Capital Markets analyst Benjamin Toms thinks even that looks like a stretch, saying in a note this week that things “could be as good as it gets” for Irish banks, which have been among the biggest gainers over the past five years among European banks.
AIB, led by chief executive Colin Hunt, has soared more than 400 per cent over the period, double that of the wider banking sector. Bank of Ireland has added more than 300 per cent.
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Downgrading his stance on AIB’s stock to underperform – the equivalent of a sell rating – from sector perform, Toms said that AIB’s valuation “looks toppy” as the stock trades at 1.66 times its so-called tangible book value. He said that a valuation gap has opened up relative to Bank of Ireland.
“Ireland is an attractive banking market, with strong growth supported by a de-levered consumer and the Government trying to correct a house-building shortage. However, we think that this narrative is already baked into consensus, and it could be as good as it gets,” said Toms, whose €8.75 price target on AIB shares is 15 per cent below where they closed on Wednesday.
He highlighted that the planned entry of Revolut into the Irish mortgage market, the likely expansion of Avant Money’s banking offering and Goldman Sachs exploring bringing its Marcus deposits brand to the State are likely to increase competition in the market.
The Government’s planned savings and investment regime and talk of the European Central Bank (ECB) requiring banks to hold more zero-earning minimum cash levels in reserve with national central banks are further minor headwinds, he said.
AIB has extended its recent losses – dipping almost 1 per cent – since RBC issued the note to clients on Tuesday morning.
