Permanent TSB’s profitability in 2018 is set to come in at a little over a third of a target set by management when the State sold down its stake in the lender a year ago, according to Davy.
The 75 per cent taxpayer-owned bank warned earlier this month that it may not deliver a return on equity, a key gauge of profitability, of 10 per cent in 2018, as it previously guided. It said the target, set at the time of a share sale in the bank last year, is being impacted by rising regulatory costs, a weaker outlook for the mortgage market, low interest rates and uncertainty over the time of the sale of the banks remaining UK home loans.
In a note to clients today, Davy financials analyst Emer Lang said she now sees PTSB's 2018 return on equity coming in at 3.7 per cent. This compares to her most recent forecast of 5 per cent and a 8.4 per cent estimate 12 months ago.
Ms Lang’s calculations point to a €1.43 base valuation on the stock, assuming the bank ends up writing back just €200 million from its stock of €2.5 billion of loan loss provisions at the end of 2015. This rises to €2.23 if the bank ends up freeing up a further €500 of provisions, according to Ms Lang.
PTSB shares, which have been heavily sold off in recent weeks amid mounting political pressure on banks to cut interest rates, rose 2.4 per cent to €1.93 in midmorning trading in Dublin. This compares to the €4.50 price at which the government and bank sold PTSB shares in the market last year.
