Richard Curran: Permanent TSB remains on the right track – but to where?

Permanent TSB CEO Jeremy Masding and CFO Eamonn Crowley at the announcement of the bank’s interim results for 2018 last week. Photo: Iain White, Fennell Photography
Permanent TSB CEO Jeremy Masding and CFO Eamonn Crowley at the announcement of the bank’s interim results for 2018 last week. Photo: Iain White, Fennell Photography

Headlines suggesting that Permanent TSB is “on the right track” with its financial performance, are accurate. The problem is trying to figure out how long that track actually is.

Reporting a 33pc increase in half-year profits during the week, chief executive Jeremy Masding said the figures were a “decent set of results”. And operationally they are.

The bank is benefiting from the upswing in the mortgage market and providing competition in a sector so heavily dominated by the big two.

Masding went further in saying the bank was closing in on completing its rebuilding work to be part of a “competitive banking market” in Ireland.

While the sale of over €2bn worth of non-performing loans grabbed all the headlines, the truth is that a decade after the collapse, and 11 years after house prices first started falling, PTSB is still making profits of just €100m on a performing loan book of over €15bn.

When management make progress on one aspect of the business, such as new mortgage lending, they get hit with the latest setback, such as the ECB wanting the bank to account for higher than expected risk-weighted assets.

The big picture here is that in pure financial terms PTSB is making progress but it is a painfully slow process.

That slow pace is reflected in the share price which remains half of what it was three years ago, and 60pc below the price investors paid for 25pc of the state’s stake.

PTSB shares still managed to fall after a 33pc profit rise.

At €2.12 per share the bank has a market capitalisation of just €957m. Long-standing speculation about a possible tie-up with Ulster Bank has come to nothing.

There are possible benefits for both banks and for consumers too from such a deal but neither is ready to tie that knot yet. Aside from Ulster Bank parent management at RBS, the Government might not want a tie-up that could lead to branch closures and job losses.

As long as PTSB is not losing money and moving in the right direction, politicians won’t be in a hurry to do anything radical that could blow up in their faces.

Bear in mind too that PTSB is selling mortgages in a low-interest-rate environment and into an economy that is growing faster than any other in the EU.

Higher interest rates and an economic slowdown could take their toll down the road. The bank didn’t cover itself in glory during the tracker scandal and has ring-fenced another €15m of provisions for costs relating to the first half of this year.

Meanwhile, PTSB’s non-performing loan (NPL) sale is going ahead and other banks look ready to follow suit.

This clean up its balance sheet but it will still have 16pc of its outstanding book in the non-performing category.

Management are working hard to make these improvements but PTSB is not there yet.

Seamus Mulligan makes it two out of two in pharma sell-offs

Seamus Mulligan must now be the hottest investment property in pharma. The Waterford-born former Elan executive has co-founded two pharma businesses in the last 13-years. After seven years the first sold for $500m and then six-years after start-up, the second has just sold for $735m.

Mulligan and his co-founders at Adapt Pharma have surprised many with the scale and speed with which they built a business that is being bought for a valuation of close to three-quarters of a billion dollars.

Mulligan owns around 75pc of the business, which he took a punt on just six years ago, and he stands to receive $550m if performance targets are met. His initial cash receipt for his shares is a massive $431m.

Adapt has developed a spray treatment which can be applied in overdose cases of opioids, such as heroine, fentanyl or prescription opioid-based painkillers.

The buyer, Emergent Biosolutions, is really betting big with this acquisition. Emergent’s market cap is just $3.1bn and it expects to make about $100m in profits this year. So forking out this kind of money, including $575m in cash up front, is not exactly small change for the buyer.

Emergent specialises in medicines and device to tackle all kinds of emergencies with half of its sales coming from a range of vaccine, capsule and intravenous products it has for Anthrax.

Companies Registration Office filings show that as of September 2017, Adapt has assets on its balance sheet of $114.9m and liabilities of just $200,000.

Mulligan of course has done this before having bagged hundreds of millions in an all-share deal when he sold Azur Pharma to Jazz Pharmaceuticals in 2012. Back then he went on to sell off $86m of his Jazz Pharmaceuticals shares to invest in Adapt. This was an enormous investment punt to take and it has now paid off in spades.

He has retained 1.06m shares in Jazz which are currently valued at a further $182m and he has 430,000 shares held through stock awards and options. He remains on the board of Jazz.

Prior to Azur, Mulligan showed astute timing when he sold Elan shares worth $210m and he is believed to retain a sizeable shareholding in that company following its takeover.

The opioid crisis in America was declared a national health crisis by US president Donald Trump. His commission looking into the problem made a number of recommendations, including harsher penalties for drug dealing and a pledge to reduce opioid prescriptions by one-third in the next three years.

Opioid prescriptions, usually painkillers, have actually been falling since 2010 but the amount of opioids prescribed per person in the US in 2015 was three times higher than in 1999. In America, medics have prescribed enough opioids to for every man, woman and child in the country for 30 days. Last year there were 50,000 deaths in the US from opioid overdoses. The Adapt spray product is much easier to administer than previous injection-based products. It was reportedly used in a recent overdose case involving singer Demi Lovato.

The potential market for the drug overdose antidote, known as Narcan, is enormous. Emergent is also a big believer in it.

Pharma private equity investors will be falling over themselves to try and follow Mulligan in whatever he gets into next.

Expect more premium whiskey buyouts as Irish spirit soars

The upward trajectory of Irish whiskey sales shows no sign of abating. News that Irish Distillers is planning a major new distillery shows how far it has come. The company, which is riding high with huge growth in the sale of Jameson in particular, has invested €250m in its products since 2012.

Jameson has been listed at number 11 on Impact’s ‘Top 100 Premium Spirits’ brands worldwide. In the overall index of top spirits brands it is ranked 38th. Irish Distillers completed a major expansion in 2013 which doubled production capacity to 64m litres of pure alcohol and a further €10m investment was announced for Midleton last year.

Some might ask whether Irish whiskey’s meteoric rise in recent years can continue. The Irish Whiskey Association believes it can and says whiskey sales from Ireland are on track to double from six million cases to 12 million cases by 2020. Last year it hit 10 million and the IWA is now targeting 24 million cases by 2030.

A lot can happen between now and 2030, as those who have studied the history of Irish whiskey know too well. The fact that a cautious global player like Irish Distillers is investing more and more augurs well for its belief in the durability of the spirit. Its moves will also be watched by potential investors who are thinking of buying up one of those new fledgling distilleries that are cropping up everywhere. Expect more premium-priced buyouts.

Sunday Indo Business

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