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Bank of Ireland
Posted by: SeaBud (IP Logged)
Date: February 24, 2014 09:13AM

I bought Bank of Ireland (IRE) in early 2012 based on three things: solid business IF the balance sheet could be addressed, Government support (15% owned) and an Irish economy that though overheated has a very solid manufacturing base (ie, pharmaceutical manufacturing) and conservative stewardship. The stock has almost quadrupled in that time. This leads to two questions I have for fellow members:

1) Why is so little written about this fairly reasonably sized bank that is the most stable bank in a major economy? The lack of publicity has obviously not effected the stock going up, but I want to know WHY the run has occurred. Is it Americans buying ADRs versus Irish/European investors? Anybody know how to find this out? I'm an intrinsic value investor so don't really care about what others think, but I am intrigued as to who is moving this stock.

2) I recently went back to pre-crisis numbers to determine how todays valuation would stack up if IRE returned to an average of their earnings (assuming the balance sheet also stabalized at pre-crisis loss levels). I conservatively figured the bank would be at about a p/e of 10 - not making it a screaming buy anymore, but given that they are the main solvent bank in a quickly recovering major economy, not an unattractive holding (I calculated other metrics of value too that showed a solid valuation). Anybody else hold IRE and perform their own valuation analysis and willing to share?



Stocks Discussed: IRE,
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Rating: 2.7/5 (3 votes)



Re: Bank of Ireland
Posted by: gurufocus (IP Logged)
Date: February 24, 2014 03:43PM

Congratulations on the investment SeaBud! It is a position that Prem Watsa (Trades, Portfolio) held and we wrote about it extensively a few years ago when he bought it. Not much coverage lately as there were no more actions from him.

It will be interesting to look at its current valuation after a terrific run.



Stocks Discussed: IRE,
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Rating: 3.0/5 (1 vote)



Re: Bank of Ireland
Posted by: SeaBud (IP Logged)
Date: February 24, 2014 04:46PM

A thank you to Gurufocus because it was Gurufocus article(s) that started my research!



Stocks Discussed: IRE,
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Rating: 0.0/5 (0 votes)



Re: Bank of Ireland
Posted by: gurufocus (IP Logged)
Date: February 24, 2014 05:05PM

You are welcome! That is exactly the purpose of GuruFocus: to see what the Gurus are doing, and start our research from there.

Very glad that you made money.



Stocks Discussed: IRE,
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Rating: 2.0/5 (1 vote)



Re: Bank of Ireland
Posted by: vgm (IP Logged)
Date: February 24, 2014 05:45PM

Seabud,

I also own Bank of Ireland (as BKIR on the London exchange). It's my largest position. I started looking at European banks in general in 2011 and zeroed in on BKIR after Wilbur Ross (Trades, Portfolio) and Prem Watsa (Trades, Portfolio) showed interest and then took large positions (at 10 euro cents/share). They publicly stressed that they particularly liked the CEO, Richie Boucher, and had great confidence in him. In addition, Wilbur was very vocal as to Ireland's optimistic future. The tangible book was around 26 euro cents at the time. Due to market volatility, I got in at 8.5 in the fall of 2011. I made it my largest position. It's up 4x. I continue to hold it (see links below).

I suspect institutional investors are now getting in, causing the move you mention, since (a) the waters around BKIR look safer; (b) the government will likely dispose of its 15%; and, (c) BKIR will probably start to pay a dividend soon. (again see linked below)

My view is that it got overlooked due to the uber-bearish outlook on so-called peripheral Europe, and banks worldwide in general (BAC was being crucified), at the time. I personally never believed Europe or the Euro would break apart, nor that banks were permanently going out of fashion. It was a case of "Buy when there's blood running in the streets." I also bought Lloyds Bank in the UK and BAC when Mr Market was giving them away.

But, generally, most articles in GF are US-centric, understandably - though there are exceptions and GF has widened its focus of late. In the Q&A with Prem Watsa (Trades, Portfolio), BKIR was discussed.

Here are a couple of articles from the past few days on BKIR which might be of interest if you haven't seen them:

[www.independent.ie]

[www.forbes.com]

Good luck!



Stocks Discussed: IRE,
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Rating: 2.5/5 (4 votes)



Re: Bank of Ireland
Posted by: SeaBud (IP Logged)
Date: February 25, 2014 04:14PM

VGM - thanks for the links. I too bought BAC when blood was in the streets (AIG is my largest position dating back a couple years from purchase though if IRE keeps screaming it may take over). I also own Banco Santader. It has not appreciated as much but I think the Spanish recovery (and latin american exposure) make it quite intriguing over the next 3-5 years.

I will keep IRE as profits emerge this year and we see what the new company looks like from an operating perspective (fcf, margins etc). Several interesting events are on the horizon: govt. sale of its 15%, generating a profit and offering of a dividend. Generally I want to hold a stock forever but if the market gets over excited about IRE, I will sell to those optimistic souls.

Good luck.



Stocks Discussed: IRE,
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Rating: 4.5/5 (2 votes)



Re: Bank of Ireland
Posted by: joe sod (IP Logged)
Date: February 25, 2014 06:14PM

I also bought bank of Ireland for 11cent in 2012, however I sold it last august, way to early for 22cent. The big run up in the share price has only happened in the last 6 months. As recently as June it had sunk back down to 13cent. Its been all good news since then but the bank still has major problems. It will be interesting to see how long Wilbur Ross (Trades, Portfolio) et al stay on board, it was the reason I decided to invest in the first place. It took alot of guts by those guys to take that big stake in the bank. However it must not be forgotten that the original investors in bank of ireland were wiped out. If it was me I would be taking my money off the table now



Stocks Discussed: IRE,
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Rating: 2.5/5 (2 votes)



Re: Bank of Ireland
Posted by: AlbertaSunwapta (IP Logged)
Date: February 25, 2014 10:32PM

Just an observation. I was in Ireland last summer and there seemed to be growing hostility towards the austerity programs, the government and the banks. eg A psychiatrist saying bank heads are directly responsible for suicides, etc.



Stocks Discussed: IRE,
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Rating: 5.0/5 (1 vote)



Re: Bank of Ireland
Posted by: vgm (IP Logged)
Date: February 26, 2014 03:47AM

"I sold it last august, way too early for 22 cents"

"If it was me I would be taking my money off the table now"

joe sod -- I'm sure your advice is well-intentioned, but I hope you can see the irony in your statements. One of the most difficult things in investing I think is to stay with a big winner. It must come down to valuation and the prospects for the future, not the fact that significant gains have already been made. I see BKIR as modestly valued and the prospects for the banking sector in Ireland as positive. Furthermore, BKIR has an exceptional jockey in Richie Boucher, as Wilbur Ross (Trades, Portfolio) describes in the first link I provided above. It may not be an exaggeration to say that the biggest risk in financials at present may be getting out too early. Let's see how Bank of Ireland, Lloyds Bank and BAC look in 3-5 years' time.

AS -- all around the world, there are (still) those who are unhappy with what happened in the banking sector and who are ready to blame others for their misfortune. Anecdotes of the kind you mention are legion. You don't need to go to Ireland to hear them. The truth is that Ireland took its medicine quick, hard and early. As a result, its recovery has been dramatically ahead of the ClubMed countries in the Eurozone. The realism and resolve of the Irish, which in part stem from the history of the country, as well the solid commercial underpinnings of the Irish economy, were partly what attracted Prem Watsa (Trades, Portfolio) and Wilbur Ross (Trades, Portfolio) in the first place.



Stocks Discussed: IRE,
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Rating: 0.0/5 (0 votes)



Re: Bank of Ireland
Posted by: SeaBud (IP Logged)
Date: February 26, 2014 03:53PM

I believe I am largely battling my own psychology of "loss aversion". It is easy to say "book some gains" - but I am a logical creature and that is a conclusion with no analysis. In reality the questions are:

- Do I believe in this stock for the long term? In this case, as the largest bank in a significant country with a stable political system, sound fiscal policy, a good leader and improving operations, I think I do.

- Would I buy it today (ie, how is the valuation assuming I like the business)? This is where I struggle because the margin of safety I saw 2 years ago has eroded with price (put another way, the increase in the price is greater than the decrease in risk so my margin of safety has narrowed). I struggle with this when a solid long term holding gets ahead of itself - for example I sold JNJ when the P/E crossed 19 because I thought the margin of safety gone. In this case, however, I do not think the stock is over valued.

Thanks for the responses as it has helped me clarify my analysis.



Stocks Discussed: IRE,
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