Dutch bank ING is rare beast with a stock price of­fer­ing good value

Sunday Independent (Ireland) - Business & Appointments - - FRONT PAGE - Des Doyle

EURO­PEAN fi­nan­cials have been re­cov­er­ing of late, and ING con­tin­ues to be our pre­ferred Euro­pean bank.

ING is a ma­jor Dutch bank with an in­ter­na­tional pres­ence. The ma­jor­ity of its busi­ness is re­tail-fo­cused within the Benelux re­gion. Its whole­sale bank pro­vides in­dus­try lend­ing and fi­nan­cial mar­kets prod­ucts to corporate clients across 40 coun­tries. Fol­low­ing a chas­ten­ing ex­pe­ri­ence in 2008, where cap­i­tal was in­jected by the Dutch gov­ern­ment, ING has spent the last decade re­pair­ing its bal­ance sheet and re-fo­cus­ing on its core busi­nesses.

Man­age­ment has suc­ceeded in sim­pli­fy­ing the busi­ness model, de­liv­er­ing a well-cap­i­talised and prof­itable bank. Its strat­egy in­cludes an am­bi­tious cost-re­duc­tion plan — which aims to re­duce the cost base by €900m a year by 2021. It plans to do this by in­creas­ing cost ef­fi­ciency in its re­tail bank­ing branches, Re­tail Benelux. ING is also in­vest­ing €800m over five years to en­hance its dig­i­tal of­fer­ing.

It is a rare beast in the sec­tor in that it is grow­ing loans rel­a­tively rapidly. It re­ported 4pc loan growth in 2017 — com­pared with a sec­tor av­er­age of 2pc. Fur­ther­more, its val­u­a­tion is not stretched: at its cur­rent price/earn­ings ra­tio, the stock price is good value. ING shares also have a div­i­dend yield of around 4pc, which we ex­pect will com­fort­ably grow over the next num­ber of years. Re­turns are good (and ahead of the cost of cap­i­tal) and should im­prove over time — par­tic­u­larly if in­ter­est rates start to rise. We there­fore be­lieve ING rep­re­sents an at­trac­tive in­vest­ment within a di­ver­si­fied eq­uity port­fo­lio. A com­pany which also mer­its at­ten­tion, but which op­er­ates in a very dif­fer­ent space, is Cel­gene.

Cel­gene is a global in­te­grated bio­phar­ma­ceu­ti­cal com­pany which is en­gaged in the dis­cov­ery, de­vel­op­ment and com­mer­cial­i­sa­tion of ther­a­pies used to treat can­cer and im­mune-in­flam­ma­tory re­lated dis­eases. Cel­gene has a strong pipe­line of in­ves­ti­ga­tional com­pounds be­ing stud­ied for pa­tients with haema­to­log­i­cal and solid tu­mour can­cers — such as pan­cre­atic can­cer and melanoma. In­flam­ma­tory dis­eases be­ing in­ves­ti­gated in­clude pso­ri­a­sis and pso­ri­atic arthri­tis.

Cel­gene is present in more than 60 coun­tries, em­ploys more than 7,000 peo­ple, and has a mar­ket cap­i­tal­i­sa­tion of $112bn (€95bn). The com­pany op­er­ates in niche mar­kets, where it tends to be mar­ket leader, with prod­ucts ex­hibit­ing high mar­gins, strong pric­ing power, high bar­ri­ers to en­try and struc­tural growth.

Cel­gene made sig­nif­i­cant in­vest­ments in drug de­vel­op­ment in re­cent years, which were funded through strong in­ter­nal cash flows. In ad­di­tion, Cel­gene has en­gaged in a num­ber of ex­cit­ing col­lab­o­ra­tions with com­pa­nies at the fron­tier of biotech­nol­ogy. Look­ing two years from now, its val­u­a­tion is ap­peal­ing, as this is when many of the com­pany’s pipe­line as­sets will po­ten­tially start com­ing to the mar­ket. In the mean­time, it has a strong core port­fo­lio, which is grow­ing. Its bal­ance sheet is also very strong.

Of course, bio­phar­ma­ceu­ti­cal com­pa­nies are not with­out risk, and Cel­gene gen­er­ates about two-thirds of its rev­enue from one drug (Revlimid), which is an ob­vi­ous con­cern.

Suc­cess is far from guar­an­teed and in­vestors need to be aware that Cel­gene is a higher-risk stock. In­vestors in the sec­tor must also be con­scious of the risk of drug-de­vel­op­ment fail­ure and reg­u­la­tory risks. Des Doyle is an in­vest­ment man­ager at In­vestec Wealth and In­vest­ment. See dis­clo­sures at www.in­vestecwealthand­in­vest­ment.ie/dis­clo­sure Any in­vest­ment com­men­tary in this col­umn is from the au­thor di­rectly and should not be seen as a rec­om­men­da­tion from The Sun­day In­de­pen­dent

Ralph Hamers, ceo of ING, helped cre­ate a well-cap­i­talised and prof­itable bank

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