Irish Equity Outlook 2021

While last year may have been a difficult year, the Irish market was quite resilient over the period following its initial fall.

Reasons to be optimistic

For Ireland when it comes to market catalysts, it’s not just about the pandemic and potential vaccines. If we cast our minds back to this time last year, Brexit was at the forefront of every market discussion. Markets don’t like uncertainty, so finally having a resolution in place should be a positive for 2021, albeit the Brexit process is complex and will undoubtedly take some years to fully implement.

So, whilst there appear to be two feel-good factors on the horizon, where does this leave us in terms of earnings and valuations for the Irish Stock Exchange (ISEQ)? As one would expect, earnings have declined in 2020, with current forecasts for a 2020 earnings decline of circa 35% for the Irish market. The corollary is that earnings should rebound somewhat in 2021, and indeed analysts have forecast a c.11% earnings recovery for the year. However, given the uncertainty over the timings and distributions of vaccines, analysts and companies are generally erring on the side of caution. This means the real recovery in earnings is set to be pushed out to 2022, where expectations are for considerably higher earnings rebound.

What this means in valuation terms is the ISEQ is trading towards the higher end of its range for this year, although the hope is that earnings may get upgraded as we get more clarity on vaccine rollouts. It has been interesting to see the clear rotation at play in the last couple of months. As investors optimistically lookout to which company business models should benefit more from a recovery in 2021, we have seen some weakness in the previously top share price performers as some of the laggards of last year finally have their day in the sun.

Focus on growth and opportunity

Given the multiple challenges faced by companies during 2020, capital raisings have continued to remain a strong feature in markets. In particular, the last quarter of 2020 proved particularly busy for the ISEQ with multiple equity placings. However, whilst the pace of raisings remains strong, in many cases rather than a need for cash following a tough year, Irish listed companies are instead topping up their purses to fund future growth opportunities, with sustainability and the environment considered to be firmly amongst those opportunities.

This means the good news for Ireland is that whilst 2020 was undoubtedly a tough year for business, companies clearly believe that there remains plenty of scope for growth in the future. In 2021, with the EU Green Deal and ESG (Environmental, Social, & Governance) regulation in the fund management industry resolutely on the agenda, we should expect that the many announcements from Irish companies on opportunities and targets in sustainability and environmental initiatives in recent weeks will grow in velocity in the coming year.