Irish businesses leading the way

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Recent months have proven to be especially tough on the eurozone. Negative stories have come from Portugal, Greece and elsewhere, constraining growth across indices. German primacy looking to be weakening. Despite all this, 2014 is shaping up to be a good year for Irish business.

Ireland’s major index, the ISEQ 20, is not only ahead of France’s CAC 40, Germany’s DAX and the British FTSE 100 for the year so far, it is the only one of those indices currently worth more than it was in January.

There have been several signs that Irish stocks are in good shape. They opened a wide gap from other European equities in March, and have tended to lead the way when bullish movements take hold throughout the year.

Perhaps most importantly, Irish stocks managed to limit the damage caused by market turbulence in mid-October, and then rebound quicker than their neighbours. The day after markets across Europe reached their nadir, it was the ISEQ that performed best, rebounding 3.2%: compared to 3.1% for the DAX, 2.9% for the CAC and 1.9% for the FTSE. Since then, it has compounded its lead position, growing 10.2% by November 13, far ahead of the DAX’s 8.2%, CAC’s 6.6% or FTSE’s 7.1%.

Which companies have been responsible for the ISEQ’s success?

Ryanair had a troubled spring. Easyjet’s dominance of budget air travel looked set to increase and many predicted that returning economic health would drive many travellers back to higher-end carriers. Since then though, it has become a case study in developing a new brand and tone of voice to adapt to a changing market.

Last year, Michael O’Leary publically acknowledged that easyjet’s gains against his airline were due to its improved flexibility and customer service. He announced that Ryanair were going to follow suit, introducing new business-friendly ticket options, relaxed baggage allowances and improved customer service.

So far, the changes have paid off remarkably. Profit targets have been raised, income and sales have increased year on year, and Ryanair has announced the purchase of up to 200 more aircraft to take on yet more ‘legacy’ carriers.

Aer Lingus has also been thriving recently, posting its strongest third quarter results since the financial crisis. It has done so largely by positioning itself as a budget long-haul carrier, particularly targeting flyers wanting to avoid Heathrow. As other airlines in Europe struggle with strikes and the challenge of budget alternatives, Aer Lingus’s ability to grow so strongly is particularly impressive.

Travel isn’t the only area in which Irish companies are outperforming their counterparts elsewhere in Europe. Irish banks were also a key factor in the ISEQ’s strong performance throughout late October.

Allied Irish Banks (AIB) – the largest component of the ISEQ with a market value in excess of €50 billion – exceeded the growth of the ISEQ in the week after October 16 with an increase of 20%. Bank of Ireland pulled off a similar feat, reaching 14% growth in seven days.

Despite Ireland coming out of the European Union’s stress tests with a clean slate for all of its 4 major banks, the performance of AIB and Bank of Ireland has sagged a little in November. With the strong financials coming out of both institutions, though, investors can hope that shares will move upwards once more soon.

Beyond the two biggest sectors, plenty of other companies are responsible for Ireland’s strong equity performance in recent weeks. Paddy Power and Aryzta, for instance, have both been offering strong returns for the last month.

2014 may not have brought the return to high interest rates, high growth and stability around the globe that many were hoping for. For Ireland, though, it has brought signs that the rigorous austerity program of recent years has not been in vain. Investors both locally and on the continent will hope that trend continues.

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