Davy cuts share price target for Permanent TSB by 4%

Stockbroker Davy has cut its share price target for Permanent TSB by 4 per cent to €3 and reduced its profit forecasts for the bank out to 2019, largely due to lower than expected level of impairment writebacks.

The stock was trading at around €2.50 a share in Dublin on Thursday, having been priced at €4.50 at the time of its initial public offering on the stock market in 2015.

Davy has also predicted that PTSB, which is 75 per cent State-owned, will pay a dividend of about €20 million from its 2018 earnings. This would be paid in 2019 and mark the first time since November 2008 that the bank had issued a dividend.

The broker has pencilled in a modest dividend of 4.5 cent per share for next year. It expects the payment to rise to about €27 million the following year.

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Earlier this month, AIB proposed a dividend payment to ordinary shareholders of €250 million. This would be its first such payment since 2008.

Guidance

Bank of Ireland

has signalled that it will resume dividend payments next year after it announces its full-year results.

Davy said PTSB was “well placed” to pursue its “sustainable commercial and profitable” growth ambition but its dividend prospects would be “dictated by further non-performing loan reduction” and the outcome of its engagement with regulators on risk-weighted assets.

Davy had forecast provision writebacks of €75 million a year between 2017 and 2019 based on releases connected with the house price index but this has been pared back to €35 million annually following recent guidance from the company.

This has reduced its profit forecast for the bank over the same period by up to 17 per cent a year. Davy now expects PTSB to produce a pretax profit of €131 million for this year, down from its previously forecast €144 million.

It has pencilled in a pretax profit of €148 million for 2019, down from €178 million previously.

While the broker has left its new mortgage lending forecasts intact (€525 million this year rising to just under €1.1 billion in 2019), it has reduced its expectations for other lending.

Davy's financials team of Emer Lang, Stephen Lyons and Diarmuid Sheridan maintained its outperform rating on PTSB in this latest analysis of the bank.