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Banks: Forecasts for Q1 profits of €251m

12/05/2008 09:24
The net profits of the three biggest Cypriot banks in the first quarter of 2008 are expected to reach €251 million, according to Citigroup. In its recent report under the title “Big Hellenic Picture” for the banks in Greece, Cyprus and Turley in spring 2008, Citi describes the anticipated course of the banks.

In view of the announcement of the three-month results in late May, Citi believes that the net profits of Bank of Cyprus will reach €121 million from €107 million in the first quarter of 2007, while the net income from interests will stand at €194 million from €173 million.

On the other hand, Marfin Popular Bank will show a net profitability of €103 million from €176 million in Q1 2007, while its net income from interest is expected to reach €171 million from €163 million.

Hellenic Bank’s net profits are expected to reach €27 million from €24 million in Q1 2007, while its net income from interests will amount to €54 million from €49 million.

HB will announce its results on May 22, BOCY on May 28 and MPB on May 29.

Bank of Cyprus

In Cyprus, the bank benefits from underlying retail volume growth, rising deposit margins and a strong foreign deposit banking franchise. In Greece, the bank benefits from an aggressive branch opening strategy and an immature branch network that is driving rapid volume growth. The main risks to the share price reaching our target price are: (1) the continuity of foreign tax treaty arrangements; (2) slowdown in underlying system volumes in Cyprus or Greece; (3) failure to successfully execute a branch expansion initiative in Greece and SEE.

Its profits for the full year 2008 are anticipated at €571 million, for 2009 at €709 million and for 2010 at €843 million. The EPS will reach €1.02 in 2008, €1.26 in 2009 and €1.50 in 2010.

Marfin Popular Bank

According to the report, MPB is gaining market share in each, and further benefits from the robust Cyprus offshore deposit market. Additionally, MPB will receive management fees from Marfin Investment Group, which has raised €5.2 billion to invest in the South East European region. MPB is supported by a like-minded core shareholder: Dubai Group. On the other hand, “the factors that may prevent the share price reaching our target price are: 1. Possibility of a slowdown in core Greek or Cypriot markets, 2. Opportunistic strategy, with potential for uncertainty, 3. Forecast risk due to limited historical disclosure”, it added.

MPB’s profits in 2008 will reach €587 million, in 2009 at €737 million and in 2010 at €878 million. The EPS are expected to reach €0.73 in 2008, €0.92 in 2009 and €1.10 in 2010.

Hellenic Bank

According to Citi, “Hellenic Bank is the third-largest bank in the Cypriot market, and has a strong franchise in the highly profitable offshore banking market. The group also has overseas growth potential. We would highlight in particular the following factors that may prevent the share price from reaching our target price: Non-ROE focused investors dominate the shareholder register. Expansion of a currently sub-scale franchise in Greece. Potential increase in competitive pressure in Cyprus”.

Small margins

Citigroup supports that “it remains positive on Greek and Cypriot banks. Economic and banking volume growth is strong and should support medium-term earnings. However, 1Q08 results will likely be held back by weak markets and margins”.

“Banking trends in Cyprus remain strong. Lending growth accelerated to 32% yoy in March 08 (from 14% yoy in Mar 07). Corporate growth is a key driver, with volumes up 44% yoy (from 16% yoy in Mar 07)”, the report added.

In Greece, “loan growth remained stable at c19% yoy in Dec 07, with corporate lending accelerating to 16% yoy. Deposit growth remained stable at c14%. We expect 1Q08 volume trends to be in line with 4Q07”.

Top picks

Bank of Cyprus (Buy, €15 target price) gives exposure to Cypriot growth and a derivative play on Russia. MPB (Buy, €10.5) offers similar gearing. NBG (Buy, €50) remains our preferred large cap regional play. Our investment summary by stock is set out on page 3.

The TP of Hellenic Bank remains at €5.25. Citigroup reduced the TPs for Alpha Bank (€27 from €28) and Piraeus Bank (€29 from €30).

As for Turkey, “lending growth in Turkey continues to accelerate, reaching almost 35% yoy in March 08, driven by household loan growth of 42% yoy”.