Erin Go Bragh! Investing in Ireland (Fool on the Hill) March 17, 2000

An Investment Opinion

Erin Go Bragh! Investing in Ireland

By Bill Mann (TMF Otter)
March 17, 2000

The Emerald Isle has enjoyed a renaissance over the last few years, transforming itself from a faltering manufacturing economy to one that is, slightly euphorically, called a "Celtic Tiger."

But there can be no doubt that Ireland has grown by leaps and bounds, as U.S. and E.U. companies (Ireland is a member of the E.U.) seek to avail themselves of its pro-business government, its skilled labor, its low cost and tax structures, and its unique geographic and cultural position. So, on this, the most Irish of days, it's appropriate that we take a look at Ireland and some of the Irish companies listed in the United States.

First, a standard word of warning. The Motley Fool does not tend to recommend investing in companies outside of the United States, and the same caveats apply here. The reason for this caution has nothing to do with chauvinistic pro-U.S. sentiment and everything to do with information and risk. In Ireland, for example, companies are required to report their earnings only on a semiannual basis, rather than a quarterly basis. Also, Irish companies employ the accounting practices of Ireland; these are different from those in the U.S., and as such one cannot simply compare financial statements between companies using these differing standards. I have yet to come across an accounting format from another country that is as concise as that of U.S. GAAP (Generally Accepted Accounting Principles). By investing in a foreign company, the Foolish investor is endeavoring to understand local accounting practices, and how to reconvert them into a form that is usable for his or her analysis.

But enough of that curmudgeonly bile -- we're talking Ireland on St. Patrick's Day. Let's celebrate!

People who invested in Ireland's finest corporations last St. Patrick's Day and held through today have plenty of reason to grab another green beer (or, for you Detroit Red Wing fans, another green ginger ale). Of the 17 Irish stocks that trade as American Depository Receipts on the major exchanges, six have earned 100%-plus returns for their investors. This gain represents a confidence that Ireland's telecommunications, software, and biotechnology companies are providing competitive products and services.

Selected Irish Companies Trading in the U.S.

Company (industry)         Ticker   1 Yr. Return
Eircom (telecom)*           EIR        -9%
Elan (pharmas)              ELN        19%
Trintech Group (software)*  TTPA      992%
Ryanair (airline)           RYAAY     127%
Esat (telecom)              ESAT      131%
Iona Tech. (software)       IONA      100%
Jefferson Smurfit(packaging) JS         3%
SmartForce (Internet)       SMTF      310%
Warner Chilcott (pharmas)   WCRX       81%
Trinity Biotech (biotech)   TRIBY     438%
Allied Irish Banks (banking) AIB      -46%
Bank of Ireland (banking)    IRE      -40%

* Publicly traded for less than one year

In fact, the only companies that have done poorly since last March -- excluding Eircom (NYSE: EIR), which hasn't traded for more than a year -- are the Irish banks and its giant container and cardboard conglomerate, Jefferson Smurfit (NYSE: JS). The banks have been hammered by the same problems that have cut into bank stocks elsewhere: rising interest rates and competition issues, particularly as the regulatory environment in Europe continues to open up formerly separated turf. Jefferson Smurfit's performance has matched that of other paper companies worldwide, marked by a significant swoon since January. Jefferson Smurfit, for its part, has lost nearly 40% of its value in the past three months.

On the other side of the coin, companies such as IONA Technologies (Nasdaq: IONA) show just how far Ireland has come from its agrarian roots. Certainly, it is helped by the presence of some significant outside influences, particularly IBM (NYSE: IBM), Intel (Nasdaq: INTC), Microsoft (Nasdaq: MSFT), Nokia (NYSE: NOK), and Hewlett-Packard (NYSE: HWP). Ireland's job growth rate is twice that of the U.S. and four times that of the E.U. on the whole. And 60% of its economy is now geared toward exports. But even though the growth of Ireland may have been spurred on by a tax structure designed to bring big fish to play there, some of the biggest beneficiaries are the Irish companies that are providing services to or competing with these same foreign companies.

With IONA, you have a company that does both. IONA provides software that helps incompatible software programs to communicate with one another, as well as its own portal system for business-to-business (B2B) enterprises to ease access of its customers to the B2B marketplace. IONA's major markets are outside of Ireland, but the company and its roots are homegrown.

IONA's success in its market is equaled by other Irish companies in their industries. The most well-known may be Ryanair (Nasdaq: RYAAY), the European version of no-frills flying mastered by Southwest Airlines (NYSE: LUV) in the U.S. Ryanair has taken the Southwest low-price model and applied it to a market that was traditionally rife with high tariffs, inefficient and monopolistic pricing, and protectionist barriers. In effect, Ryanair's ascendancy may have been even more impressive than Southwest's as the latter "only" had to deal with predatory competition, but had the advantage at least of being in a single regulatory environment. Ryanair, on the other hand, has capitalized on being the airline from nowhere, using its Irish roots as a way to forge past the regulatory hassles of trying to compete in Europe. I don't believe that it could have had the same success if it were from, say, Germany, as the British and French would have their guards up much higher at having their markets assaulted by an upstart. But Ireland? What threat since the great Celtic hordes have come from Ireland?

Well, Ryanair, for one. Ryanair is the fastest growing, most profitable airline in Europe, and it consistently rates high marks from its customers for service.

There is a lot to be said for the Irish renaissance. The government saw early on that the transitory tendencies of capital meant that they could structure incentives to attract it. The labor unions played along, allowing several thousand unnecessary jobs at government-owned companies to be trimmed, and hasn't contested the privatization of many former government services. In return the economy is booming, though the effect of this has not been enjoyed by all. But it is early yet, and Ireland's homegrown companies are proving that they are competitive worldwide.

But let's quit talking about that. It's time to go enjoy some of that St. Pattie's Day cheer.


Bill Mann, TMFOtter on the Fool Boards

Related Links:
  • Johns Hopkins University Magazine: The Celtic Tiger Stalking Cork