Even after the 1990s privatisation boom, and the PD years, and “closer to Boston than Berlin”, the state is still the dominant player in the Irish domestic industry. 

Ireland has its multinational recruits of course, and multinationals of its own like CRH, Flutter, ICON, Ryanair and the aviation lessors. But for those companies, Ireland isn’t an important market. 

This is a list of the most valuable state-owned enterprises (SoEs). It’s derived from their 2020 and 2019 financials. I go through the methodology in more detail here, but the basic idea is that I estimate what future earnings will be, and then discount those earnings based on how risky their industry and/or individual situation is. For example, even though similar 2021 earnings are forecast for Coillte and the VHI, Coillte is in a much riskier industry so it’s worth much less. 

What are the takeaways? First, that the SoE sector is very big and important. The 17 companies listed here are worth a combined €42 billion by my calculations. That’s compared to a combined €29 billion for fifty of the biggest (limited liability) private companies in Ireland and Northern Ireland, according to our recent valuation survey.

The academic evidence shows that, even though some SoEs are as good as any private company, the bad ones perform worse than peer private companies. That's roughly what I find here, with our small sample size. There are 17 companies in total and 13 of them have lower returns on capital than the average for listed US companies in their industry. Four beat the average. There are of course reasons for this in a number of cases. RTE, for example, is mandated to do a host of functions by statute that a private company would not do by choice.

You might say that this is an unfair benchmark: US-listed companies are roughly the biggest and most efficient ones in all industries. But it's the best benchmark we have.

A third point is that, taken as a group, the SoEs are not cash cows for the state. I took the dividends for the years 2019 and 2020, whichever year was bigger. Then I summed them and divided them by my estimate of the SoEs total equity value. It results in a dividend yield of 0.55 per cent. That's less than half the dividend yield of the average company on the US stock market. 

As you can see below, dividends are very unevenly distributed. Coillte, Gas Networks Ireland, DAA and Dublin Port have been good dividend payers in recent years. The rest haven't, although again, entities like RTE and CIE were never envisaged to pay a dividend, hence the licence fee and the subvention respectively.

Most of the companies on this list are operated on a commercial basis. That is, they are independent, they don't rely on subsidies, and they borrow to fund themselves. This is handy because it means they can be valued and compared like-for-like with private companies.

Five SoEs, or subsidiaries of SoEs, are reliant on Exchequer funding: RTÉ, the Port of Waterford, Irish Water, Dublin Bus and Irish Rail. With the exception of the Port of Waterford (whose government grant was small last year), the other SoEs depend on public funds to operate. 

This model values operating businesses, and in the absence of the subsidy/support the above-mentioned SoEs don't have an operating business. So I've valued them at zero. They're not literally worth nothing, since they have assets — they could be stripped down and sold for parts – or restructured to remove non-profitable, but important, elements of their mandates. But their operating business isn't worth anything, and that's what I'm looking at here. 

RTÉ

RTÉ is in the expensive business of creating TV, radio and original journalism. It's an industry where the richest corporations in the world are investing billions, and where quality doesn't come cheap. 

RTÉ's costs in total summed to €316 million in 2020, the overwhelming majority of which went on producing and broadcasting original content. 

On the revenue side, RTÉ made €97 million from ads, €196 million from the licence fee, and €38 million from other bits and pieces such as publishing and transmission/mast income. 

Like the transport companies and Irish Water, it misses the point to value RTÉ as a fully commercial operating company, since it isn't one. Without the licence fee it's not a profitable operating business, and it's on that basis I'm valuing these companies. However, if it was a commercial entity, it would operate a completely different service – hence the existence of the licence fee.

Bus Éireann / Bus Átha Cliath / Iarnród Éireann

I've treated the three CIE companies separately in the list, out of deference for their sheer size. But from a valuation perspective it doesn't really make sense, because Bus Átha Cliath, Iarnród Éireann and Bus Éireann's operating businesses are worth little.

Like Irish Water, their operating business doesn't work without subsidy. Bus Átha Cliath (Dublin Bus) got €40 million in subsidies in 2020, Iarnród Éireann got €88 million, and Bus Éireann got €112 million. The Department of Transport also restricts competition on many of their routes in one way or another, which is another form of subsidy.

Iarnród Éireann is the biggest of the three. It accounted for 39 per cent of CIE revenue in 2019. Bus Éireann brought in 31 per cent of revenue. Bus Átha Cliath brought in 23 per cent, with CIE tours bringing in the remaining eight per cent. 

As with other transport companies, the CIÉ companies took a big hit from Covid. Where they differ from private coach companies is that they have the safety net of the subsidy, which is scaled up and down as needs be. 

The DCF values Bus Átha Cliath, Bus Éireann and Iarnród Éireann's operating businesses at zero, because they're not commercially viable with support.

The ports: Dublin, Cork, Foynes, Waterford

The ports — Dublin, Cork, Foynes and Waterford — are separate companies, but I'll treat them together. 

The ports make their money by collecting tolls and by renting out port land. 

The big issue has been Brexit. Taking Dublin Port, operating profit fell from €47 million in 2018 to €44 million in 2020. Supply chains are being reorganised and new routes are being established. Though so far, there is no sign of a cliff-edge drop in trade through the major ports. 

The Discounted Cash Flow (DCF) model values Dublin Port strangely — at €163 million, compared to an earnings multiple of €408 million. This is an artefact of the fact that Dublin Port is investing massively right now. So take the DCF number with a pinch of salt.

The Port of Cork is valued at €293 million by the DCF and €444 million by the earnings multiple. Foynes is valued at €254 million by the DCF and €92 million by the earnings multiple. And Waterford is valued at €60 million by the DCF and €24 million by the earnings multiple. 

Shannon Group

Shannon Group operates Shannon airport, the Shannon free zone and business parks in the Limerick city area. It's a successor to Shannon Development, which itself grew out of the IDA. It took over the running of Shannon Airport from the DAA in 2012. 

The airport is Shannon's biggest business, at 56 per cent of turnover. Some 17 per cent of turnover comes from its commercial property business and 16 per cent comes from its tourism assets, like Bunratty Folk Park. 11 per cent comes from other sources. 

The last year has not been good for Shannon. Covid impacted traveller numbers at all airports, but what really stung was the decision by Aer Lingus' parent company IAG to pull out of Shannon.

This is a blow to the airport and the region, whose business model has been based on courting investment from the US. This week Ryanair announced it would be running additional routes from Shannon. But the loss of transatlantic routes will sting. 

With other transport businesses I have assumed, optimistically, that things will get back to normal, and valued them on their 2019 income. I'll discount Shannon's forecast because of the closure of the Aer Lingus routes. 

The DCF values Shannon at €278 million; the earnings multiple values it at €261 million. 

Irish Aviation Authority 

The Irish Aviation Authority (IAA) runs air traffic control. When a plane passes halfway across the Atlantic on its way to North-Western Europe, it falls under the control of the IAA until it passes into Britain. It's a big business: the IAA employs 725 people, and it invested €27 million in a new air traffic control tower in 2019. 

Like DAA, the IAA was hit by the decline in air travel as a result of Covid. For the purposes of the valuation, as with the airport, I'm going to assume the IAA gets back to 2019 operating profit. 

The DCF values the IAA at €686 million; the earnings multiple at €506 million. 

Coillte 

Coillte has two main businesses. The first one is the more familiar one: managing forest parks and growing timber. This business accounted for 35 per cent of Coillte's revenue in 2019. The second is the manufacturing of MDF and plywood — what Coillte calls Medite SmartPly. 

Coillte is the best dividend payer of the lot in terms of yield. It paid out €13 million last year, which is a yield of 10.2 per cent. 

The DCF valued Coillte at €800 million, and the earnings multiple valued it at €559 million. Having said that, Coillte's book value is €1.3 billion, because it owns lots of valuable land. So valuing it based on its operating business probably misses the point.

An Post

An Post gets the gold medal for most improved SoE. In 2016 it had an operating loss of €12 million. After a restructuring and turnaround (including a hefty increase in the price of a stamp), it's now fairly profitable. 

In 2019, An Post made a windfall €66 million operating profit after the sale of the One4All voucher business. It made €32 million last year, which was a good year, based on a surge in parcels. High street retail's loss has been Amazon and An Post's gain. The DCF values An Post at €1.56 billion, and the earnings multiple values it at €918 million.

Dublin Airport Authority

Leading up to Covid, everything was rosy in the garden for Dublin Airport Authority (DAA). 2019 set new records for passenger numbers at Dublin and Cork airports. 

Passenger numbers collapsed from 35.5 million in 2019 to 9 million in 2020. The question is how long things will take to go back to normal. 

DAA owns Dublin and Cork airports. It also has investments in three airports in Europe, as well as running an airport terminal in Saudi Arabia. 

I'm sidestepping the whole vexed question of the future of air travel, and assuming things get back to normal. It's on that basis I've valued DAA. I've assumed it can return to the 2019 level of operating profit, which is €204 million.

That values DAA at €3.1 billion using the DCF, or €3.4 billion using an industry multiple. 

VHI Healthcare

VHI Healthcare is a statutory corporation (and not strictly a limited company). Set up in 1957, it had a monopoly on health insurance in Ireland until 1996, when BUPA joined the market. 

Its main business is underwriting private medical insurance, though it also has side businesses in selling third party insurance policies to its customers, and in operating clinics and the like. 

Despite being the state's second most valuable SoE, with 2019 operating profits of €51 million, VHI Healthcare doesn't pay the state a dividend. Funds have been retained in the company for its members.

Like the ESB, the VHI appears to be run on an efficient and commercial basis. It employs 1,451 staff who make an average of €44,000 in Ebit each. The ESB's return on capital, at 5.9 per cent, is also higher than the industry average. 

The DCF valued VHI Healthcare at €3.2 billion, and the earnings multiple valued it at €650 million.

Eirgrid

Every day there's a live market in electricity in Ireland, and Eirgrid runs that market. Eirgrid also owns the high voltage power lines. It moves power around the Republic of Ireland, moves it around Northern Ireland, moves it under the Irish Sea to Wales.

Lots of state-owned companies fall into this category, especially utilities, but Eirgrid is a natural monopoly. It's expensive to build a grid network, but once it's built, it's fairly cheap to operate. It doesn't make sense to build multiple parallel grids. So it tends towards monopoly. Eirgrid's fees are regulated by the government to stop market abuse (as are the ESB's and Gas Networks Ireland's). 

A natural monopoly is a handy business model. Eirgrid would be expected to make €113 million in operating profit next year. It only employed 545 people, so that's €207,000 operating profit per employee. Its return on capital is 16.3 per cent, which is more than double the power industry average of 7.8 per cent. 

The DCF values Eirgrid at €5.3 billion, and the industry multiple values it at €1.5 billion. As with the ESB, Eirgrid might have had an investment-light year last year, which inflates the DCF values somewhat. Another possibility is that the industry I've lumped it in with — the power industry — doesn't really capture what it does, as a monopoly electricity transmission business. 

Ervia — Gas Networks Ireland and Irish Water

Ervia is the parent company of Gas Networks Ireland (GNI) and Irish Water. Both of those companies, GNI and Irish Water, are utilities that are focused on distributing basic commodities to the home.

GNI owns, operates and maintains the pipes that transmit natural gas. It also has a fibre optic telecoms network — if you're digging the trench anyway, why not bury a fibre optic cable while you're at it? It also part-owns the gas Interconnector pipelines between Ireland and Scotland. 

Gas Networks Ireland is highly profitable. It made a €122 million operating profit in 2020, and would be expected to get back to the 2019 level of €144 million next year. 

The challenge for any utility is investment. Utilities companies have to constantly invest money to maintain and grow their assets. GNI spent €115 million on Capex in 2020, and had a depreciation charge of €140 million. In other words, despite investing €115 million in 2020, GNI's assets still shrunk in value, because they are depreciating so fast. 

The DCF model says GNI shares are worth €6.4 billion, and the industry multiple says the shares are worth €2.3 billion. 

The other half of Ervia is Irish Water. Irish Water is a different beast to GNI. They both send the basics of life, via pipes, to people's front doors. But people are willing to pay for heating and are unwilling to pay for water. For that reason, Irish Water is not a true commercial enterprise. It is totally dependent on the state to cover its costs. Irish Water is controlled jointly by the boards of Ervia and Irish Water. The plan is for Irish Water to spin out as a stand-alone company in 2023.

If, next year, it gets back to where it was in 2019, Irish Water would be expected to make €268 million in operating profit. That number is supported by an €815 million subvention from the state. Without the subvention, Irish Water would be expected to be more than half a billion in the red. 

Like GNI, Irish Water's capex bill is huge. It spent €850 million on it in 2020. 

The model I'm using to value these companies assumes they are in steady-state, mid-life mode. The model does not do well with deeply loss-making companies like Irish Water. Without the government subvention, and without an ability to charge its customers, Irish Water isn't really a going concern. It's only valuable as a collection of assets.