The UK’s shock decision to quit the European Union is set to trigger a raft of profit alerts from Irish companies in the coming months, with analysts having already moved to downgrade stock ratings and earnings forecasts.
“We’re coming to the end of the first six months of the year and, when we hear from [public companies] again, it’ll be with profit warnings and challenging earnings statements,” said David Holohan, chief investment officer with Merrion Capital in Dublin, referring to upcoming interim results expected from companies in the next two months.
Ryanair’s shares plunged 15.2 per cent to €10.46 on Monday, following a 9.8 per cent sell-off on Friday, as Easyjet issued a profit warning and analysts at brokerages Evercore ISI and HSBC in London downgraded the Irish stock. Easyjet’s alert comes hot on the heels of a similar warning from Aer Lingus’ parent IAG on Friday on the back of the Brexit vote.
Evercore cut Ryanair to hold from buy. HSBC slashed its net profit forecast for the Michael O'Leary-led group by 12 per cent for the current year and 24 per cent for the next. It lowered its price target on the stock to €9 and rating to reduce in a negative report on European airlines.
“Ryanair’s widespread operations from the UK are reliant on the UK’s membership of the single aviation area,” said HSBC analyst Lobbenberg. “We estimate 30 per cent of Ryanair’s capacity would be uncertain.”
The industry’s woes are compounded by the fact that fuel is priced in the dollar, which has soared against both sterling and the euro since the UK referendum.
Kingspan saw Bank of America Merrill Lynch cut its view its stock to neutral from buy on expectations that demand for the insulation panel maker's products in the UK, which accounts for 27 per cent of sales, and mainland Europe, which makes up a further 46 per cent, will fall.
“Our economists believe there is a material risk of a recession in the UK prompted by the Brexit result,” said BofAML analysts led by Arnaud Lehmann, who have also cut their earnings forecasts for Kingspan. “Across Europe, it is likely that growth will be lower than previously expected, but not to the same extent at the UK.”
Kingspan’s stock had tumbled 7.1 per cent, following a 21 per cent drop on Friday.
C&C, which generates most of its revenues in the UK, was also on offer, falling 3.6 per cent, after Société Générale cut its stance on the cider maker’s shares to outright sell.
Analysts at Investec in Dublin said they were reviewing their forecasts for Bank of Ireland as 16 per cent of its estimated 2015 pretax profit is denominated in sterling, while slower UK loan growth and a potential easing of Irish economic growth would also hit earnings.
Deutsche Bank also highlighted the impact of a weakening pound against the euro on Bank of Ireland’s UK earnings when the group’s annual results are calculated. Bank of Ireland shares slid 21 per cent.
Meanwhile, Investec analyst John Cronin said it is "very unlikely" Permanent TSB will sell its remaining UK mortgage book in the near term, due to expected uncertainty in Britain over asset prices.
