Europe’s Top-Performing Stock Index Not Enough to Stay in DublinCormac Mullen
Ireland’s stock index is the best performer in western Europe this year. That’s not enough to stop some of its biggest companies from defecting.
DCC Plc, which distributes everything from fuel to Microsoft Corp.’s Xbox game consoles, will quit the Dublin market and its shares will only trade in London starting May 3. It follows United Drug Plc, Greencore Group Plc and CRH Plc across the Irish Sea in an attempt to broaden their appeal.
“A lot of investors just weren’t looking at Greencore before the move and now that’s changed,” Alan Williams, chief financial officer at Greencore, which merged with U.K. food company Uniq Plc in 2011, said in an interview. “For us, there was a compelling case and we have no regrets.”
London has long been a magnet for overseas companies seeking access to a deeper pool of money. The Irish exchange, led by Deirdre Somers, is fighting back, saying there’s no need for companies to leave and that share performance is driven by earnings and acquisitions rather than listing location.
Dublin’s ISEQ index gained 14 percent in euros since Jan. 1, while the country’s bonds are the top performers in the world along with Spain because of renewed confidence in Ireland as it edges toward exiting the bailout it sought in November 2010.
“There is no alchemy in index inclusion,” Somers, who took over the Dublin-based exchange in 2007, said in an e-mailed response to questions. “Research indicates that companies on the Irish market have one of the most international investor bases of any European markets.”
The departure of three of the top 20 companies on the Irish market, coupled with CRH shifting its primary listing to London, is the latest blow for the exchange, founded in 1793 and controlled by the country’s securities firms.
Even after this year’s advance, the benchmark index has dropped 61 percent as the financial crisis took its toll since the height of the country’s Celtic Tiger boom.
Allied Irish Banks Plc, now 99.8 percent state-owned, dropped out of the main market to join the Enterprise Securities Market in 2011, while the state took over and liquidated Anglo Irish Bank Corp., the lender that pushed the nation to the brink of bankruptcy. The capitalization of the main Irish index, which peaked at 132 billion euros ($173 billion) in 2007, now stands at 55.8 billion euros. The number of companies listed on the exchange has dropped to 50 from 76 since 2002.
Greencore moved to a sole listing in London last year after buying Uniq and changing the currency for reporting earnings to sterling from euros. About 90 percent of its sales are in the U.K. The move gave Greencore access to a “much deeper pool of liquidity,” said Williams.
After its shares dropped 10 percent on the day the company announced the move, the stock recovered to beat the FTSE SmallCap Index by 45 percentage points until March 2012 when it joined the index. Since then, it has outperformed the measure by seven percentage points and its European food peers by five percentage points, data compiled by Bloomberg show.
The inclusion in U.K. indexes means the stocks can be bought by funds that track them, making it attractive for Irish companies to move listings, said Mark Murnane, head of trading at Dublin-based spread-betting firm Shelbourne Markets.
“They can be headquartered and tax resident here so get all those positives,” Murnane said. “Yet by listing in the U.K. or U.S., they get a whole new level of coverage from analysts, come onto new fund managers radars and ultimately broaden the shareholder base.”
CRH, the world’s second-largest maker of construction materials, led the way, moving its primary listing to London in December 2011, a year after Ireland was forced to seek its package of international rescue loans.
The stock rose 4 percent on Nov. 8, the day of the announcement, and by the time it joined the FTSE 100 Index in December, it had outperformed the benchmark by six percentage points. Since then, the stock has traded about in line with the index and underperformed the Irish market. Its 35 percent total return since announcing the listing has been bettered by the ISEQ’s 48 percent advance.
A spokeswoman for CRH declined to comment for this story, as did officials at DCC.
“It’s a futile activity to focus on the pots on money in tracker funds,” said Linda Hickey, head of corporate broking at Goodbody Stockbrokers in Dublin. “The ‘big bang’ impact of FTSE inclusion results in a handful of active investors selling out on ‘D day’, replaced by passive ones.”
It’s not only Irish companies who have been drawn to London. Coca-Cola Hellenic Bottling Co. SA, Greece’s largest company by market value, moved its primary listing from the Athens market to London. Russia’s Evraz Plc, the steelmaker part-owned by billionaire Roman Abramovich, and Polymetal International Plc, a silver and gold miner, are among the Russian companies who moved their main listings to Britain.
Yet Somers, the Irish stock market chief, argues that companies lose as much as they gain by swapping euro-oriented shareholders for those in London.
“It is difficult to see how replacing one set of passive investors with another could be advantageous to a company,” said Somers. The Irish exchange “provides a euro quotation, ISEQ and Eurostoxx inclusion for companies enabling access to these significant pools of institutional funds which track European markets excluding U.K.”
What’s more, the three departed companies had a higher than average international shareholder base before they moved their listings, according to data compiled by Bloomberg.
Nine percent of CRH’s institutional shareholders were classified as Irish in April 2011 compared with 5 percent for Greencore and 12 percent for United Drug. The average figure for the top 20 companies listed on the ISEQ was 15 percent.
Since the move, the proportion of Ireland-based investors dropped to 2 percent for CRH and 1 percent for United Drug, compared with 12 percent for the ISEQ 20. Greencore’s percentage of Irish institutional shareholders has remained stable at about 6 percent. Most of the new interest comes from U.K. investors.
“I struggle with the argument that U.K. FTSE benchmarked investors are somehow ‘better owners’ of a company’s stock than other international investors,” Hickey at Goodbody said. “Companies would be better served focusing on expanding their U.S. and Canadian shareholder base.”
For now, the exchange may have stemmed the flow. Paddy Power Plc, the country’s largest bookmaker, and Kerry Group Plc have both ruled out quitting the index anytime soon.
“If you look at some of the people that have moved I know they moved on the basis they felt that their shares were undervalued,” Gavin Slark, chief executive officer at Grafton Group Plc, the Dublin-based building product supplier, said last month. “I’d rather concentrate on what we can do in the business rather worrying about external factors like that.”