BKRIY - Third Avenue - Bank Of Ireland:  Double-Digits ROC And Continues To Grow

2024-04-26 07:00:00 ET

Summary

• Bank of Ireland's return on tangible equity has improved to 17% in 2023, with a projected figure of 15% going forward.
• The bank's price to tangible book ratio has increased to 106% from 60% in 2019.
• Bank of Ireland plans to distribute 72% of its 2023 earnings through dividends and a share buyback program.

The following segment was excerpted from this fund letter.

Bank of Ireland ( OTCPK:BKRIF )( OTCPK:BKRIY )

When we purchased Bank of Ireland in mid-2019, the bank was producing a return on tangible book value of roughly 7.5%, a pretty poor level of profitability resulting from a remarkably low interest rate environment and a decade of increasing regulatory capital requirements following the Global Financial Crisis. Even then, we believed the bank had reached the point of being arguably over-capitalized, and we were excited by the opportunity to buy shares at 60% of tangible book value. To this last point, the math of paying 60% of tangible book value for a company producing a 7.5% return on tangible equity implies an earnings yield, relative to our initial cost, of about 12.5%. It is important to note that if the company continued to earn a 7.5% return on equity in perpetuity, management illogically opted to retain all earnings within the company, and the company continued to be valued at 60% of tangible book value forever, Bank of Ireland would have produced a pretty modest return for us. This possibility compels our team's emphasis on the strength of financial position, which permits the company to choose how it allocates capital, as well as an appraisal of the management team and its incentives....

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