AIB share price greatly inflated ahead of IPO

People are mistakenly thinking they're going to earn big when the bank floats this summer...

If you're a regular Joe looking to make a quick killing once AIB re-floats in late June, investment analysts have issued a warning about the current share price.

While the Government owns 99.9% of the 26 billion shares, the remaining percentage is currently quoted on secondary stock markets and has been surging in value.

Having priced at 5.3 cent as recently as the start of the month, they closed at 9c on Wednesday night, an increase of nearly 70%. 

Cantor Fitzgerald banking analyst Stephen Hall told the Irish Independent that the share price on flotation was unlikely to be that high:

"There is a tiny free float, as 99.9% of the bank is owned by the Finance Minister. The current share price is certainly not a reflection of the underlying dynamics of the business of the bank."

 

It’s assumed that this reflects the mistaken view on the part of some existing small shareholders in AIB or new retail investors – that by buying the shares that are available for purchase now, they may somehow gain an advantage ahead of expected IPO in a month’s time.

That current 9c share price, however, implies a value of close to €23.5bn on the bank when it is more likely that it is worth less than half of that.

The State's formal valuation at the end of last year was €11.3bn.

Although bank share prices across Europe have increased in value since then, even assuming a 10-12% uplift, you would have a valuation of roughly €12.5bn or just under 5c per share.

Finance Minister Michael Noonan was forced to warn small investors to stop buying AIB shares in 2014 when an "eejit trade" – as London stockbrokers coined it – saw them purchase so many that the bank's market price leap to €78bn.