St Patrick’s Day today is not just an occasion for the Irish to celebrate their national saint but for investors who have backed the often overlooked opportunities there.
Whilst its nickname of the ‘emerald isle’ refers to the lush landscape, it could equally apply to the jewel-like quality of its economy.
Its GDP is impressive. The IMF says Ireland is growing at 3.4 per cent by comparison with 1.5 per cent for the UK and on a per capita basis US$64,782 for its 4.7m population to the UK’s $39,921.
The European Commission recently reported even more encouraging statistics that the Irish economy expanded by 7.3 per cent in 2017. Whilst this uplift is likely to moderate closer to 4.5 per cent, Ireland is almost certainly going to remain the strongest growing economy across the eurozone.
The one cloud on the horizon is Brexit. As those negotiations continue, the thorny issue of the border with Northern Ireland and the UK’s future trading position with Ireland remain unresolved. This is particularly important for Ireland as the UK is its second largest export market, accounting for 13.5 per cent of exports.
Clearly political instability will colour the timing of investments. The draft EU proposal is for Northern Ireland to stay in the customs union if no workable solution to the Irish border question can be found.
Ireland has recovered well from the eurozone crisis in 2012 despite being locked into the euro with a collapsing banking system. The workforce was 15 per cent unemployed, a level which has reduced to 6.1 per cent today. “By taking the pain upfront, the country has been able to benefit from stronger growth now,” says Adrian Lowcock, investment director at fund manager Architas.
The country has favourable tax laws which attract large multinationals whose activity has a significant impact on a small economy.
The Irish listed companies are few in number. The Dublin stock exchange is heavily slanted to a small number of companies with four large ones forming 55 per cent of the market: CRH, an international construction group, is the largest but other notable stocks include the Kerry Group, which manufactures food flavourings, low-cost airline Ryanair and sports betting group Paddy Power Betfair. Bank of Ireland is also significant.
Ryanair is probably Ireland’s best known quoted company. Capitalised at 18.83bn euros, it forms 10 per cent of the listed market.
Martin Payne, Leeds-based director of wealth manager Brewin Dolphin, says that “despite the recent pilot shortage and corresponding cost pressures, the company remains in a strong position and ultimately should remain one of the lowest cost operators in the industry”.
Whilst historically a difficult industry in which to operate, Payne feels that the recent share price fall of around 15 per cent “could potentially provide a reasonable entry point”.
Thomas Dawson, investment manager at broker Redmayne Bentley tips two shares:
Dalata Hotel Group
Glanbia, a global nutrition company.
Dalata is Ireland’s largest hotel operator with 38 hotels – of which nine are in the UK – and over 7,000 rooms. It owns 26 and leases a further 12. It operates four under management agreements, using the brand names Clayton and Maldron.
Dalata plans to open four new hotels this year and has “demonstrated its ability to grow ahead of a broader market”, says Dawson, who adds that the share price has performed well over the last five years.
Glanbia sells protein smoothies, pre-workout energy drinks, protein shakes and protein bars. This is a growth market where Glanbia appears to have a competitive advantage with several well-known, trusted brands. The firm also has a US cheese operation and an innovative nutritional products business which focuses on speciality grains and whey.
CRH forms nearly a quarter of the stock market. It is the world’s largest third largest building materials supplier and has continued to build out its platforms in North America and Europe through acquisitions. The US now makes up slightly over half the group revenues. Payne predicts that “with US end markets remaining strong, profit should continue to expand over the next year or two”.
Most investors will gain some Irish exposure through the prism of European equity funds but this is generally less than five per cent. Jupiter European, for instance, has 5.9 per cent exposure, largely through its single holding in Ryanair.
The fund is a star in its sector, turning £100 into £165 in just three years. Manager Alex Darwell aims to build a portfolio of world class companies that are able to sustain profit growth and margins over a long period.
Janus Henderson offers a UK and Irish small companies fund, which it inherited on the acquisition of Gartmore several years ago.
Its stock selection is made by Lombard Odier but, despite the title, has no current investment in Ireland today.
FP Crux European Special Situations, one of the star funds, has 3.3 per cent of its portfolio in Ireland but a bias more towards Scandinavia.
For a broad exposure of the Irish stock market, the iShares MSCI Ireland is an exchange traded fund which seeks to replicate the returns of the index. It has a total expense ratio of just 0.49 per cent, making it a low cost part to any portfolio.
Another way to invest in the whole market at the same cost is the euro-dominated exchange trade fund issued by WisdomTree .
Many of Ireland’s iconic and successful brands, such as Guinness and Jameson’s whiskey, are now owned by international drinks conglomerates. In the former case, the stout is owned by Diageo, which has listings in both Dublin and London.
The firm also owns Kilkenny beer. Jameson’s forms part of the French-owned Pernod Ricard stable.
Cider has been a popular Irish drink for centuries. Two of the current leading brands, Bulmers and Magners, are owned by the C&C Group, which is headquartered in Dublin and listed on both the Irish and London stock exchanges.
Jason Hollands, of Tilney Investment Management, has researched the Irish market. He has found that Diageo is the largest holding (9.6 per cent) in Nick Train’s very successful Lindsell Train UK Equity fund and also the highest holding (7.9 per cent) in Evenlode Income, his firm’s top equity income pick.
Two key banks are listed: Bank of Ireland, which offers preference shares as well as equity, and Allied Irish. The relative euro capitalisation of each is 7,821m and 13,735m.
Irish Continental is one of the interesting, smaller listings. It is a shipping and transport firm, which opened the Rosslare to Le Havre route in 1973.
For investors seeking a diversified property portfolio, Irish Residential Properties is a Dublin-based company which has operated apartments around the capital since 2013.
Its shares are capitalised at 814m euros.
Finally, for an oil and gas exploration company, Tullow Oil is worth considering.