Irish Permanent shares have had an extraordinary run since the former building society floated 31/2 years ago, and those shareholders who have held on to their free shares must be pinching themselves with the profit they have made. From a flotation price of 180p in 1994, Permo shares now stand at 940p, having doubled in value since the beginning of 1997.
But now may be the time for shareholders to think about taking some profit from the shares, subject to the restrictions of capital gains tax, of course, as the shares have now reached a level that many in the market find difficult to justify.
Assuming Permo produces 1997 earnings of 39-40p next week, as analysts have forecast, then it puts the shares on a historic p/e of almost 24 and a forward p/e of almost 20 if 1998 earnings forecast of 45-46p prove to be accurate. Is there any obvious reason why Permo should be rated 20 per cent higher than AIB and Bank of Ireland and around 30 per cent higher than the British clearing banks?
No doubt speculation on 10 per cent shareholder Abbey National's intentions plays some part in the equation. But the indications are that Abbey National intends to devote itself to its home market for the next few years and a bid for Permo costing upwards of £1 billion (at current valuations) is not a priority.
If takeover speculation is stripped out, there is no clear reason why the shares should trade at their current elevated level, even with the prospect of making a seriously earnings-enhancing acquisition such as the TSB.
Mr Robbie Kelleher of Davy's has gone slightly cool on the banking sector's prospects, believing that the extraordinary performance of banking shares in the past few weeks has put the sector on too high a rating. Mr Kelleher bases his judgment on the fact that earnings' prospects for the industrial stocks are better in the years ahead, with the banks' earnings growth squeezed by margin pressure as a result of lower interest rates and the costs and loss of revenue associated with EMU.
The Davy analyst's recommendation is for those with an overweight position to move to "a more neutral stance" in the banks. In the case of Irish Permanent, analysts at Dolmen are more blunt when they commented this week: "we feel that there may be better value to be found elsewhere".
