Bank of Ireland (IR:BIRG) (LON:BIRG) shares jumped over 3% after exceeding profit expectations on Monday.
The bank posted a 4% underlying profit before tax beat compared to consensus estimates, primarily due to lower-than-expected impairments. However, on a pre-provision profit basis, results were broadly in line with expectations.
Investors appear to be focusing on the bank’s new guidance, which includes a target return on tangible equity of over 17% by 2027.
This outlook exceeds previous estimates and has been well received by the market. The bank's fully loaded common equity tier 1 capital ratio stood at 14.6%, slightly above the company’s 14% target, providing a comfortable buffer above regulatory requirements.
The lender announced a dividend of €0.28 per share, slightly below consensus expectations of €0.32, and a share buyback program of €590 million, also under forecasts of €620 million.
Despite these slightly softer shareholder returns, tangible book value per share rose by 5% to €10.43, reflecting solid capital generation.
One of the key takeaways from the results was the bank’s net interest income, which came in slightly above expectations but declined 2% on a half-yearly basis due to lower liquid asset income and higher deposit costs. Net interest margin fell to 2.82%, down from 3% in the first half of 2024.
The bank also took a €172 million charge related to the ongoing Financial Conduct Authority’s review of historical motor finance commission arrangements in the UK, which RBC analysts noted as a potential risk factor.
However, the overall impairment charge for the period was lower than expected, at €73 million against consensus estimates of €111 million.
Bank of Ireland forecasts over €3.25 billion in net interest income for 2025, assuming a 2% ECB deposit rate by year-end.
They project 2% loan growth, 5% business income growth, and a 3% cost increase, aiming for a cost-to-income ratio under 50%.
Despite UK regulatory risks and digital competition, the bank's long-term growth and appealing valuation strengthen its investment appeal.
“FY25 consensus PBT expectations have fallen, driven by analysts baking in lower rates and UK motor finance litigation. For us, the story from here is multi-year growth at an attractive price. Ireland is likely one of the few economies in Europe where investors will find meaningful growth over the next 3yrs,” said analysts at RBC Capital Markets in a note.
