BANK of Ireland is the country’s second biggest public company with a market capitalisation of €15.8 billion.

Headed by Brian Goggin, it has retail and business banking operations in Ireland and Britain. It also has a large capital markets division, which accounts for about one-third of group profit. This includes Bank of Ireland Asset Management, its fund management arm, and IBI Corporate Finance, a leading mergers and acquisitions adviser.

It recently sold its 90.44% interest in Davy, Ireland’s biggest stockbroker, to management and staff for €316.6m.

On Thursday, Bank of Ireland reported a 28% increase in its underlying pre-tax profit to €852m in the six months to the end of September. Its net interest income rose by 20% to €1.2 billion. Its retail operations in Ireland were a star turn, with profits rising by 26% to €339m.

The analysts below have been picked for their skills in a number of investment areas. They, or the funds they manage, may hold shares in the companies or sectors discussed.

Kevin McConnell, head of research, Bloxham Stockbrokers

LAST week’s results from Bank of Ireland illustrated the impressive momentum garnered through the refocusing of its business in Britain and Ireland over the past two years, combined with a group-wide, cost-cutting programme.

Profit growth on an underlying basis reached 28% at the interim stage, putting it at the top end of European banking results this year.

Income growth of 14% is well ahead of the 5% cost growth, reflecting strong top-line growth on a lower cost base. The UK, which has acted as a drag to earnings in previous years, showed 33% profit growth in the first half of the year. It accounted for 24% of group profitability.

The Irish side of the business continues to deliver at a strong level with its retail business in the republic recording profit growth of 26%, while life shows sales growth of 25%.

When combined, these divisions contribute 44% of group profits, while the bulk of the remainder comes from the successful wholesale financial services franchise, which saw profits rise by 52% in the first six months off the back of a 20% increase in lending volumes.

In spite of the strong results, a broadly sceptical UK analyst community continues to be unconvinced about the success of Bank of Ireland and the other Irish financial groups. Commentary on BoI from overseas can tend to concentrate on worries over capital requirements, margins, the bad debt outlook and mortgage market exposure.

Bank of Ireland’s capital position is adequate for its growth, especially after the Davy sale. Margin attrition is half the level of the past few years, and its bad debt experience is among the best in Europe.

Finally, the mortgage market makes up just 10% of overall profits. Its slowdown will be hyped up and could overshadow the strong growth from the corporate/SME lending market.

We expect earnings for the full year to come in about 2c or 3c ahead of the 142c management target.

Judgment: buy

Philip Kearney, senior fund manager, Hibernian Investment Managers

BANK of Ireland’s interim results show underlying pre-tax profits rising 28% to a record €852m with each of its key divisions showing strong growth. Retail Republic of Ireland profits grew 26% while operating profits in the life business rose 27%. The British financial services division’s profits rose 33% and wholesale banking profits increased by 52%. Underlying lending trends remain strong with mortgage growth up 25%, personal loans rising 19% and lending to small businesses up 29% in Ireland.

British volumes are even stronger with business lending rising 47% and specialist mortgages 25% higher. The bank’s strategic transformation programme is exceeding its original objectives, containing costs and improving efficiency ratios. Asset quality remains robust with bad debts at an all-time low.

Such trends will translate into earnings growth of 20% to March 2007 and it is this earnings momentum that has been driving share-price returns.

Earnings momentum from here is likely to slow as interest rate rises affect credit growth, impairment charges rise from levels that are significantly below trend, and competition chips away at margins.

The consensus view is that these factors will lead to earnings growth closer to 10% to March 2008. It is the magnitude of the impact of each of these factors that divides opinion on Bank of Ireland.

Believers in a soft landing in the housing market and a return towards trend growth in the domestic economy will be comfortable with such expectations. Those concerned that the European Central Bank and the Bank of England might tighten monetary policy beyond current projections will be less comfortable with the bank’s earnings outlook, given its exposure to the property market.

Bank of Ireland’s capital position is more constrained than many of its European peers and this may preclude it from trading at a premium rating. The group is approaching fair value in the short term.

Judgment: hold

The firm at a glance

Share price: €16.03
Market cap: €15.6 billion
Year end: Mar 07
EPS forecast: 140c
Dividend forecast: 59c
Leading shareholders: BIAM 6.8%, AIB plc and its subsidiaries 2.4%