Tuesday March 10, 2009
"No country’s stock market has fallen further during the global meltdown" says Carl Delfeld, referring to Ireland. Yet, in Chartwell ETF Advisor, he sees potential in New Ireland Fund (NYSE: IRL).
"Without question, Ireland has lost its magic; the New Ireland fund has fallen from over $20 to close yesterday at $3.30. Ireland’s real estate bubble was and is perhaps the worst in the world and has greatly impacted its banking system.
"Ireland's largest bank and the second largest holding in the New Ireland Fund, Allied Irish Banks PLC, reported a 57% fall in its net 2008 profits as its written-off debts soared amid crumbling property markets in Ireland and neighboring Britain.
"Allied Irish shares have plummeted more than 90% over the past year. Ireland’s government has unveiled a deal to invest euro3.5 billion in the bank.
"Meanwhile the largest holding in the New Ireland Fund, CRH Construction, has successfully launched a rights offering and seems to gaining its footing despite the construction slowdown.
"Well over half the cash from the Irish building materials producer’s rights issue announced on Tuesday is reserved for acquisitions, leaving €500m to retire debt. CRH’s balance sheet also looks reasonably solid.
"At the end of 2008, net debt to earnings before interest, tax, depreciation and amortization was an acceptable 2.3 times, well below debt covenants of 3.5 times. After the cash call, it falls to 1.8.
"It seems to me that relative to its current price, IRL offers investors a reasonable chance at significant upside especially since it is trading at a 27% discount to net asset value.
"The risk of AIB demise is real and the Ireland economy is reeling but a bet on its eventual recovery from these depressed levels warrants consideration.
"The successful rights offering of the fund’s largest holding, low valuations and the expectation of economic aid from the European Union. We emphasize that the risk factor is high, and strongly suggest an 8% trailing stop loss."
