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Global consolidation impacts on Irish plcs Back  
The global trend of mergers and acquisitions and management buy-outs has certainly impacted on Irish plcs in the past twelve months, according to the results of Finance’s seventh annual survey of fund managers on Irish publicly quoted companies.
CRH again topped the best rated plc survey with Irish fund managers in the seventh annual Finance survey. Both Irish and international fund managers rated Irish companies and despite a turbulent market the findings were similar to last year’s with CRH again scooping the top slot. The building materials group swept the board to collect six of the first place rankings in the survey.
This year the survey recognised the rising importance of international fund managers in the Irish market, with increased responses from international fund managers along with the traditional respondants, the Irish fund managers. Like the stockbroking survey which was published with the November issue, the pool of respondees to this years plc survey represented all significant investors in Irish stocks.

The market in 2000
While the ISEQ index regained some of its lost ground towards the end of the year, the overall performance has trailed other European exchanges. This has left fund mangers reevaluating their portfolios and, as a consequence, the companies in those portfolios.

But of course this has been a ternd for several years, as Irish fund managers have been actively trying to reduce their dependence on ‘Irish’ stocks because of the introduction of the euro. Indeed the main investors in the Irish market now are international investors. This has had an impact both of stockbroking in Ireland and on how the companies themselves market their stocks abroad.

Anecdotaly many companies felt undervalued by Irish stock market, with more talk about some small to mid capped companies becoming privately owned. This had been predicted for some time, but it is expected to really take effect in 2001.

In the survey the changing market dynamics were refelected by the shift in ratings. Financials were certainly out of favour as reflected by some slipping in the rankings, while pharamceutical and IT companies were more in vogue. Given this is wasn’t surprising to see newly listed Baltimore and Horizon made its first-time appearances in the top ten best rated companies this year. Ireland’s fund managers can no longer be described as Irish, but are now international fund mangers.

Movers and shakers
While the twelve largest companies (AIB, Baltimore Technologies, Bank of Ireland, CRH, Eircom, Elan, Independent News and Media, Irish Life & Permanent, Kerry Group, Jefferson Smurfit, Ryanair and Smartforce) dominated the top ranked companies several small to mid capped companies made significant inroads to the ratings.

Although there have been indications that second line stocks were finding it hard to attract investors, fund managers’ ratings of many of the mid-sized stocks as better positioned stratigically that the larger companies. Iona Technologies, IAWS, Grafton Group, Horizon, Green Property and United Drug, to name but a few mentioned in this category, while the likes of Bank of Ireland, Eircom, Independent News and Media are noticeable by the absence from the top twenty.

First class winner - CRH
Once again CRH has taken the most first place positions in this year’s survey, and still remains the fund manager’s favorite. The building materials group has collected six out of eight first place rankings including strategic positioning, acquisitions capability, capital structure, marketing strength, accounting information and corporate governance. There have been some interesting changes in the rankings of the runner up positions though. New entrants to the largest companies section, like Baltimore Technologies, the e-security products leader, have moved up in the rankings while there has also been a resurgence of appeal from the more traditional contenders like Elan Corporation and IAWS.

Despite the market jitters over the past twelve months and plummeting tech stock prices Iona technologies has fared well this year taking second place in the strategic positioning category. Last year Iona had a few scares after there was a question over some large accounts, but it has made a good recovery in the past twelve months and becomes a top player in the overall rankings of Irish plcs according to the fund managers surveyed. Ryanair still holds its own within the market but moves into third place this year in the strategic positioning category. The property companies are still benefiting from the boom in that sector with both Grafton Group and Green Property being ranked in the top ten. Galen Holdings slipped one place to thirteenth.

IAWS has moved up the field coming in fourth position overtaking the Kerry Group who maintained their sixth place ranking from last year. IAWS has made good ground in most categories on last year’s rankings. The food companies are doing well perhaps reflecting the impact of the weak punt and the subsequent boost in exports to UK meaning increased profitability for many in the Irish food sector. Elan has made a great come back this year taking seventh place in the strategic positioning category. This compares with their absence in the top twenty-one rankings last year. This highlights the rally in pharmaceutical stocks and may reflect Elan’s good market position as it is about to roll out new products while many of its competitors are facing the beginning of the end of their patents and thus their monopoly on certain products. United Drug also moved up the ranks to eleventh place.

The technology stocks are sliding heavily on overseas exchanges especially hardware companies like Hewlett Packard, Dell and Compaq however the two Irish tech companies, Horizon Technology and Baltimore, are doing well and make it, for the first time, into the top ten strategically positioned companies. Telecommunications has also been a volatile sector over the past year yet ITG Group has done well with the fund managers who rank them in seventeenth position. With the absence of ESAT Telecom and the poor performance of Eircom - the choice of Irish telecommunication plcs to rank is limited.

Financial shares have continued to move down the ratings with AIB falling to nineteenth position from last year’s seventh. Irish Life & Permanent remained in twentieth place while Anglo Irish Bank showed a slight improvement moving up three slots to this year’s twelfth place. IFG Group has made a considerable leap into this year’s top companies’ ratings underlining the fund managers’ approval of their management strategy, acquisitions and performance in general over the last year. Renamed Smartforce, formally CBT obviously impresses those surveyed as it finds itself ranked in sixteenth position. DCC, the marketing and distribution holding company, has also moved up slightly in the rankings to eighteenth position while Jurys Doyle Hotel Group dropped down several places from last year’s fifth to fifteenth place this year. For the first time radiator and plastics group, Barlo takes a top position in this category of the survey. This may be as a result of the fund managers approving their acquisition strategy that has been successfully implemented over the last twelve months and improvement in internal management.

Acquisitions capability
CRH remains the king of acquisitions capability taking first place for the seventh year in a row. There has been some shuffling about in the runner up positions with IAWS improving on last year’s position taking second, Kerry Group third and Grafton Group slipping slightly from last year’s second place to this year’s fourth. Jurys Doyle Hotel Group has shown improvement in this category by moving up five places to fifth position. This may be on the back of their plans to open hotels across the UK. The Barlo Group make a good entrance to this category in sixth position while Elan makes it back into the rankings this year in seventh position.

CRH reclaims its first place in the marketing strength category this year knocking Ryanair back into second place. Kerry Group remains in a comfortable third while AlB moves up one to take fourth place. The rest of the places in this category have been filled with some new faces besides Grafton Group that remain in seventh place as ranked last year. Baltimore takes fifth place. Independent News & Media makes a come back in this category coming in sixth while Smartforce make an entrance in ninth place Jurys Doyle Hotel Group has been knocked out of the top ten rankings this year by Kingspan Group, the building materials manufacturer by a slim margin.
The technology based companies have edged into the marketing strength category this year knocking out the old reliable Waterford Wedgewood, albeit by a narrow margin.

Investor relations
In the investor relations category this year first and second places remain the same as last year’s with AIB first and CRH second. Ryanair has dropped to seventh place from their number three position in 1999. Grafton Group is now the proud holder of third place. The Smurfit Group makes a good recovery in this category taking eighth place. IAWS make a dramatic entrance in fourth place with Irish Life & Permanent taking fifth. Anglo Irish Bank and Horizon Technology also make it into this category for the first time in ninth and tenth place.

Corporate goverance
It seems that no company can move CRH from the top position in the corporate governance category. They have won it consecutively for seven years. There have been many strong contenders over the years but CRH always manage to maintain their lead. Grafton Group has moved up the ranks into second place shifting AIB into fourth. While Irish Life & Permanent remain in their third place just as they were placed in 1999. New entrants into this classification include Barlo Group, United Drug, Horizon Technology and Marlborough International in sixth, seventh, ninth and tenth place respectively.

Capital management
The number one place in ‘capital structure’ again goes to CRH. The rest of those ranked in the top ten in this category have all moved places from last year. Grafton Group move into second, Ryanair take third place with Kingspan, Iona Technologies, IAWS and Horizon filling up the rest of the slots pushing the older more traditional companies to the end of the line. AIB, Bank of Ireland and Jurys Doyle Hotel Group take eighth, ninth and tenth place respectively.

Dividend policy
The dividend policy category is usually an open race and the winner this year is the Grafton Group. A step up from their second place last year. Bank of Ireland jump from last year’s tenth place to this year’s second. CRH remain in third. Smurfit Group makes a reentry into the rankings in fifth place. Heiton Holdings appear in the top ten for the first time in eighth place as do Anglo Irish Bank in ninth and DCC in tenth.

Accounting information
First and second place stay as last year in ‘accounting information’ with CRH first and AIB second. Again more of the new companies beat the traditional organisations to take their place in this category with Horizon coming in fourth and IFG Group in sixth. Heiton Holdings does well in seventh position as do Barlo Group, Iona and IAWS in the respective eighth ninth and tenth positions.
The results of the survey are influenced not only by trends in global stock markets but also by the performance of individual companies over the past twelve months. Therefore variance in the category rankings is a reflection of this. The fund managers answer the survey by basing the qualitative ratings on each individual company’s performance in the past year.

On the basis of market capitalisation two new companies have entered the twelve largest companies section. They are Baltimore technology, whose floatation took place in January 1999 and Smartforce, the renamed CBT (computer based training) company. Baltimore has the larger market cap of the two new entries yet both are over the two billion mark.

Glanbia, the large food company has been moved into the small to mid-cap section this year due to the inclusion of Baltimore Technologies and Smartforce in the twelve largest companies section.

Greencore has also moved out of the largest companies section into the small to mid-cap rankings.

A new player this year is the public house owners, Capital Bars.

With Irish institutions looking to decrease their holdings of Irish shares in advance of Economic and Monetary Union, it seems likely that the smaller stocks will attract less interest from investors. Yet the second line companies have done very well in this year’s survey with several making it into the top ranked positions. Barlo Group edged into the top twenty one strategically positioned companies as well as entering the top ten in three other categories including acquisitions capability, accounting information and corporate goverance. Heiton Holdings, Atlantic Homecare DIY group and recent acquirers of, Sam Hire the construction leasing group, and of the Panelling Centre also have placed themselves very well in the market in the last twelve months. Wining places in two of the top ten categories this year, Heiton Holdings made it into the accounting information and dividend policy rankings ahead of many of the twelve largest plcs. Many of the Irish small to mid-cap companies have potential for significant earnings growth. Market trends suggest that there is considerable room for expansion among the serious players in the small to mid cap sector, like Barlo for example, in the growing sheet plastic business.

The continuation of global consolidation across all sectors saw a number of takeovers in the Irish market. BCO Technologies was takenover by Analog Devices, the Hibernian Group by CGNU, Boxmore International by Chesapeake International, European Leisure by Allied Leisure, Hampden Group by Sainsburys and Powerscreen International by Terex Group.
There have been a number of MBOs in the past year including Adare Group and Clondalkin.

International companies
1999 was the milestone year for Irish plcs in that it was the first year when they could genuinely be benchmarked alongside their Euroland competitors in the various sectors. Last year’s survey proved that Irish companies could indeed hold their own against their European counterparts. Judging by the results from this year’s survey, the Irish plcs continue to hold up well, with some exceptional Irish performances showing that Euroland is proving a fair and competitive environment.
According to the survey, Ireland’s most favoured company, CRH fares particularly well against its most comparable competitors. The French Lafarge, Swiss Holderbank and German Heidelberger are all ranked similarly but CRH manages to maintain its lead averaging a very impressive score of 9.13 across all eight categories whereas it’s closet challenger Holderbank averages a score of 8.25. The Italian company, Italcementi, is building on its performance last year and obtains a good average score from the fund managers overall. The other favourites mentioned as contenders for CRH’s position in the market included Blue Circle, Hanson and Vulcan.

As regards the financials, AIB and Bank of Ireland, the fund managers surveyed frequently compared both Irish banks to Bank of Scotland, Lloyds TSB, Royal Bank of Scotland, Barclays and BBVA. While Lloyds TSB scores an average of 9.00 across all eight sections, AIB holds up well with an average of 8.38, whereas Bank of Ireland is less impressive with 7.25. Among AIB’s other counterparts were Dutch ABN AMRO, Swedbank and HSBC. Bank of Ireland, on the other hand, attracted comparisons with Halifax, Alliance & Leicester and Abbey National.

The fund managers compare Kerry Group most regularly with McCormick, ‘the world’s largest spice company, the latter lagging behind Kerry with an average rating of 6.25, as compared with Kerry’s average of 6.50. Other Kerry peers include Universal Foods, Danisco, Unilever, IFF and Bush Boake Allen.

The most high profile newcomer to last year’s survey, Eircom, has fared pretty badly in the market and comes in at a lower rank than most of its most frequently mentioned. Eircom was ranked alongside Telfonica, KPN, France Telecom and BT. Another competitor that was frequently noted was Deutsche Telecom. Eircom receives an average rating of 5.5, while BT’s experience still enables it to average 8.7. Another interesting comparison mentioned was the Spanish incumbent, Telefonica that averaged a score of 7.38 across the eight categories.

Meanwhile, Irish Life & Permanent is compared repeatedly to CGNU, the English financial services group. It is also compared to the Dutch company Aegon. However, AXA, the French sector leader, was found to give Irish Life & Permanent a good run for its place in the rankings and managed to win victory by averaging 7.50 across all categories. Irish Life & Permanent averaged 6.75. Other contenders for the leading company in Europe according to the fund managers surveyed include two British companies Prudential and Legal & General and another Dutch group, ING.

For the second year running Smurfit Group were the company which was viewed as having the ‘most improved’ investor relations’ programme. When compared to its closest competitor the Smurfit Group maintained its edge and averaged a much-improved 7.75. It’s nearest rival, Stora Enso, managed an average of 7.63. Other companies frequently mentioned as comparisons to Smurfit included SCA, Georgia Pacific and International Paper.

As a company which performed less well in 1999 but has made a great come back in 2000, Elan’s average rating is much improved. When it is compared to that of most commonly mentioned peer, Alza, Elan’s average is 7.00 across all eight categories but Alza maintains a slight lead with its 7.5 average. Other peer companies for Elan which were considered include AHP, DURA, Allergan and Merck.

Pearson is the peer company that most commonly came to the fund managers’ mind when thinking of Independent News & Media. While Independent is rated at 5.7 across all categories, Pearson nips into the lead this year at 6.88. Other media groups mentioned as being comparable to Independent were EMAP, United News, Fairfax and Pearson.

The two newly ranked technology companies, Baltimore and Smartforce fared well against their international counterparts. Baltimore was compared most to the British companies Entrust and Verisign. The Irish company was ranked in first place as it averaged a clean 7.00 as compared to Entrust’s 6.72 average score across all categories.

Ryanair, another new entrant to the top twelve largest companies, seems to be a favourite with the fund managers. However its closest rival Southwest Airlines remain in the lead with an average of 7.29 just ahead of Ryanair’s average score of 7.00. The other contenders frequently mentioned for top ranked low fare airline were Easyjet and Buzz.

Most improved Investor Relations projects
This year for the second year running the fund managers rated the Smurfit Group as the Irish plc with the most improved investor relations’ programme. Other companies recommended in the survey results include Irish Life & Permanent, Bank of Ireland, Iona Technologies and Horizon Technology.

Twelve largest companies
The newcomers into the twelve largest companies’ section; Baltimore Technologies, Smartforce and Ryanair have been ranked favourably by the fund managers. Baltimore has managed to secure three positions in the top five largest plcs - strategic positioning, acquisitions capability and marketing strength. While Smartforce takes sixth place in the strategic positioning category and seventh in marketing strength. Ryanair makes it into five top five rankings - strategic positioning, investor relations, marketing strength, accounting information and capital structure.
The largest financial plcs in Ireland, AIB, Bank of Ireland and Irish Life & Permanent have all moved into the lower ranks of the strategic positioning category this year. This differs from last year’s results when AIB and Irish Life & Permanent were rated within the top five. Ryanair keeps its strong position at the top of the table as do Kerry Group. Elan has made an improvement on last year’s position yet still has some ground to make on its performance in 1998. Eircom has slipped in the rankings from last year’s sixth place to this year’s twelfth. In the acquisitions capability category the top six positions have been reshuffled among the same contenders as last year.

The exception here is that Baltimore Technology has entered the rankings and AIB moved back into ninth place out of twelve. In the overall rankings only the top three companies, CRH, Kerry Group and Elan make it into the overall top ten. Investor relations is usually a close call for the first place among the big twelve. This year is no exception with AIB squeezing into first ahead of its very close rival CRH. Irish Life & Permanent maintain their solid third place while Ryanair beat Smurfit Group by a slim margin to take the fourth position among the big twelve. Eircom come in twelfth in this section and forty- ninth overall. The top rankings in the Corporate Goverance category is always very close among the twelve largest companies. This year CRH wins with Irish Life & Permanent in second, AIB in third and Bank of Ireland fourth. In the last three surveys CRH has come first yet second and third places are normally fought out between AIB and Irish Life & Permanent. The newcomers to this section fare reasonably well with Baltimore and Ryanair coming infront of Elan, Eircom, Smurfit and Independent News & Media.

Unfortunately the newly ranked largest companies, Ryanair, Baltimore and Smartforce do not fare very well in the dividend policy ratings. The three companies are ranked towards the end of the table and only make it into the forties in the overall rankings. Bank of Ireland win this category improving greatly on their fourth position last year. The Smurfit Group has achieved a huge recovery in this category too moving from last year’s twenty-third place to this year’s joint sixth shared with Irish Life & Permanent. Kerry Group and Independent News & Media have also made good recoveries in this category moving up the ranks from last year’s thirty-something positions to this year’s twelfth and thirteenth respectively.

Marketing strength sees the largest plcs taking eight of the top ten rankings overall. ITG Group and Grafton Group are the only small to mid cap companies that make a challenge for the top positions in marketing strength in this year’s survey.

Ryanair do well by taking second place and knocking the Kerry Group and AIB down one position each.

Elan improve from last year’s thirty-ninth position to tenth.

Ryanair has shaken up the rankings in ‘capital structure’ taking second place form last year’s second place winners, AIB. Eircom has dropped way down the rankings from twenty-forth last year to fifty-third place in 2000. Only four of the largest plcs make it into the top ten positions in this category. There is considerable competition from the small to mid cap companies like, Grafton Group, Kingspan and Iona Technologies.

The rankings are very similar this year in ‘accounting information’. The top three remain unchanged. Ryanair makes an impressive entrance to this section in fourth place. Overall the top twelve companies are quite poorly rated when it comes to accounting information with only the top three making it into the top ten plcs overall. Horizon Technology, Grafton Group, Iona, Barlo, IFG Group and Heiton Holdings all give a good run for their money in this category.

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