Bank of Ireland's loan growth targets in the UK and for corporate clients are too ambitious, and their fee targets too high, Goodbody financial analyst Eamonn Hughes has said in a note to clients.
Ireland’s largest bank by assets held a capital markets day in London on Wednesday outlining a target to grow its loan book by 20 per cent. In its note, Goodbody said that implies net growth of €14 billion by the end of 2021 with the UK accounting for €3 billion and corporate clients for €4 billion.
“We have to admit, this pace of loan growth surprised us, particularly since BoI has been quite conservative on loan growth aspirations to date,” Mr Hughes said.
While positive on the group’s Irish growth targets, he explained that because of the bank’s €5.6 billion legacy loan book in the UK, its actual UK growth will have to be 22 per cent, or closer to €5 billion, to deliver 10 per cent growth overall.
On the corporate lending front, Bank of Ireland expects that book to grow from €13 billion to €17 billion.
“Again, our first impressions is that this is reasonably ambitious,” Mr Hughes said, noting that a large portion of the Irish growth, which accounts for half of growth in corporate lending, will be related to the real estate market.
Although Bank of Ireland are targeting a loan book of €90 billion by 2021, Goodbody expects that to be closer to €88.2 billion.
“Clearly BoI has shown a willingness to drive for volume growth. We are just not as bullish as management,” Mr Hughes wrote.
At its capital markets day, Bank of Ireland chief executive Francesca McDonagh outlined plans to shave €200 million off the bank’s cost base by the end of 2021.
She also increased the amount the bank plans to spend overhauling the business by €500 million to €1.4 billion. That includes its four-year information technology project and costs to cover restructuring including redundancies.
Despite questioning some of its growth targets, Goodbody left its “buy” rating unchanged with a price target for the stock of €8.90, noting the stock “still looks fundamentally cheap”. The bank is currently trading at €6.93 on the Irish stock market, down 6.6 per cent in the past 30 days.
Seperately, Exane BNP Paribas analyst Alicia Chung downgraded the recommendation on Bank of Ireland to “neutral” from “outperform”. Exane lowered its price target to €8.10 from €9.
