This article is from our October 2020 edition of MarketWatch.
27th October, 2020
Twenty years of industry experience has taught me one thing – whilst you can be right on the direction of markets, the timing can be different story. Though the Irish market seemed somewhat exuberant when I last wrote for MarketWatch in July, anyone that ‘sold in May then went away’ as was usual this year, would have missed out on further upside in the Irish market.
Promisingly, in earnings terms, there is slightly more clarity in the Irish market now than in July. A few months ago, many Irish companies had removed both earnings guidance and dividend payments for the period. Now, we are beginning to see some company guidance and even some dividends creeping back
in for this year at least, albeit with caveats around further potential lockdowns attached for earnings. As earnings results from Irish companies tended to surprise to the upside over the summer, we saw a flurry of earnings upgrades from analysts across multiple sectors who had assumed the worst for the year. However, most companies understandably remain reluctant to give any earnings guidance
beyond this year. Arguably, the companies that have the least visibility are the tourism related names, where clarity is lacking on quarantines, ‘green’ list destinations, and possible further lockdowns. In sectors such as these, there is little promise of a full earnings rebound until at least 2022, in the absence of a vaccine.
Another notable feature in Ireland was the number of equity and debt raisings in recent months as it became clear the pandemic was going to be prolonged. In several cases, these raisings appear to fall into the ‘opportunistic’ bucket, and in the longer term we are likely to see some Irish companies take their cheque books out for mergers and acquisitions (M&A) opportunities. Interestingly, in recent weeks we have also seen the largest ‘green’ bond ever placed globally coming from an Irish listed company, Kingspan. With the new European accelerated emissions target cuts and increasing legislation at both the EU and central banks level, this type of announcement will very likely become commonplace in Ireland and elsewhere going forward.
There are a few factors at play here. Firstly, in valuation terms, Ireland does not look particularly cheap relative to its history. Secondly, our political leadership appears to be hanging on by a delicate thread at the moment. Thirdly, whilst our core belief remains that we will see some sort of last-minute resolution to a hard Brexit, there is always a risk we won’t. So even without a potential second wave of the virus, there is a lot priced into the overall market, considering the risks.
On a positive note, from an Irish equity perspective, there are some good alternatives for this holding. Though there are a certain proportion of Irish listed companies that are unwilling or unable to (or in the cases of the banks, downright forbidden by regulation to) pay dividends, equally there are several solid companies with strong management teams, great balance sheets, and good dividend yields at present. However, as with any investment, diversification is key. Therefore, while we don’t recommend putting all your eggs in one basket, it’s good to know that there are still some possibilities for investment in Ireland. Please contact your private client adviser if you wish to discuss any of this further.
WARNING: Forecasts are not a reliable indicator of future results.
WARNING: The value of your investment may go down as well as up.