Headwind from Brexit risks for Irish exporters likely to reverse, Investec says

Sterling should recover once the risk of Brexit was exorcised, but in the meantime it would create a headwind for Irish exporters, Investec said.

Further weakening in the pound due to worries that Britain might leave the European Union might drag on the share prices of Irish companies such as Origin Enterprises, C&C and RyanAir, the broker said in a research note sent to clients.

Those companies, in particular, would face translational risks from the depreication in Sterling as costs denominated in euros grew.

On top of that, Origin Enterprises could face the prospect of its farming clients losing EU subsidies - which account for 60% of their income - while any impediment to the free movement of passengers would likely impact the entire airline industry, although RyanAir would likely be able to pass the increased costs to customers.

However, Brexit could also create some winners, in the likes of Paddy Power Betfair, DCC and Grafton, which have significant earnings in euros but report to shareholders in Sterling.

If Brexit did actually take place, it might also be a positive for ICG, the ferry operator, which in the late 90s derived nearly half its profits before tax from duty-free related activities.

From a macroeconomic perspective, the outlook was mixed. The Emerald Isle stood to gain as foreign direct investment was driven towards its shores, although at this stage such a scenario was speculative, at best, analyst Gerard Moore said.

Over the long-term, Moore referenced a study from Germany´s IFO institute which pegged the loss to Irish GDP per capita by 2030 at between 0.8% and 2.7% lower than if the UK stayed put.

"That said, the extent to which Sterling could sell off from here is unclear, as some of the recent moves we have seen in the currency markets are clearly related to the risk of Brexit occurring.

"All in all, we do not see a Brexit happening. Assuming we are right, this should lead to Sterling strengthening after the referendum and Ireland’s current export headwind from the pound will then give way to a tailwind."