We see a return to normality in Central
European banking markets and turn
more positive on the sector, raising our
target prices for all banks
􀀗 We prefer the smaller Polish banks OTP
and Komercni (a CEEMEA Super Ten
stock), as we think Pekao and PKO may
suffer from competition for capital
􀀗 Five upgrades and one downgrade give
us six Overweight (V) and three
Neutral (V) ratings for CE3 banks
Turning more positive. We see economic growth
momentum and the process of Central European banks’
share price re-rating continuing in the near future. We are
now much more positive on the prospects for the operating
performance of the CE3 banks under our coverage.
We raise our 2009 net profit forecasts for four banks by
between 11% (PKO) and 50% (BRE) and our 2010 estimates
by an average of 22%. The majority of our estimates are now
at the top of the Bloomberg consensus range. Lower loan
loss provisions stemming from falling NPLs from next year
are the key driver of our changes.
We prefer Komercni and OTP over Pekao and PKO
among the large caps. We think the potential wave of
privatisations in Poland next year may create downward
price pressure on the latter two most liquid stocks, whereas
OTP is still very attractively priced. The smaller Polish
banks already show signs of exploiting the uncertain times to
gain market share.
Cost of equity assumptions reduced across the board.
Our assessment of a return to normality in equity markets
has led us to revert to considerably lower historic betas, eg
0.84 instead of the 1.25 we used previously for ING Bank
Slaski, which benefits our valuations.
Q3 2009 earnings surprises could be short-term catalyst.
Although we see barriers to a re-rating to pre-crisis 4x P/BV
multiples, the drivers behind them such as low banking
penetration levels and long-term convergence with Western
European wealth levels are still there.