04/04/2008 13:02
In its report on the outlook of the European Banks in the second quarter of 2008, Keefe Bruyette & Woods (KBW) includes Marfin Popular Bank among its top picks. The top picks also include Piraeus Bank, BBVA, Commerzbank, DnB NOR, HSBC, Raiffeisen, Santander and UBI. According to the report, “our top picks in the sector fall into three categories: 1) healthy earnings growth with strong visibility and reasonable valuation (Raiffeisen, Marfin, Piraeus, BBVA, Santander), 2) defensive profiles (UBI, DnB, HSBC) and 3) relatively healthy, “bombed out” valuation plays (Commerzbank). We would avoid banks with meaningful exposure to wholesale revenues, further writedowns, capital increases, a deteriorating credit cycle, and monoline players (liquidity risk)”.
KBW reduced the TP of Piraeus Bank to €29 from €30 (-3.3%) and of Bank of Cyprus to €10 from €12 (-16.7%) (with a market perform recommendation). A market perform recommendation is given to Eurobank too with a TP of €24.2.
The TP for Marfin Popular Bank and Alpha Bank is €11 and €29 respectively with an outperform recommendation. An outperform recommendation is also given to National Bank (TP of €50) and Piraeus Bank.
Bank shares are cheap
KBW supports that the shares of the European banking sector are “cheap”, however, “we are looking for the end of the earnings downgrades cycle as a buy signal for the sector”.
KBW maintains its Underweight on the sector. “The economic outlook is still challenging, sector earnings estimates have been downgraded again and we continue to see future negative earnings revisions”.
“The combination of a weak 4Q07 and deteriorating conditions in 1Q08 have resulted in KBW cutting its 2008 and 2009 sector EPS forecasts by 19% and 10%, respectively, since the end of 4Q07. The estimate cuts are the result of lower revenues and higher loan loss charges. Investment Banks felt the brunt of the changes. Our estimates now point to sector earnings growth of -6% YoY in 2008 and +16% YoY in 2009, respectively, after adjusting for structured credit writedowns”, it added.
“We believe the earnings forecasts risks remain mostly to the downside. In the short term, continued writedowns and weaker wholesale / market revenues could prove most challenging to earnings expectations. In the long term, earnings downgrade risks are asset quality deterioration, structurally lower returns, lower loan growth and margin pressure. KBW is now 14% and 4% below consensus for 2008 and 2009”, it concluded.
KBW reduced the TP of Piraeus Bank to €29 from €30 (-3.3%) and of Bank of Cyprus to €10 from €12 (-16.7%) (with a market perform recommendation). A market perform recommendation is given to Eurobank too with a TP of €24.2.
The TP for Marfin Popular Bank and Alpha Bank is €11 and €29 respectively with an outperform recommendation. An outperform recommendation is also given to National Bank (TP of €50) and Piraeus Bank.
Bank shares are cheap
KBW supports that the shares of the European banking sector are “cheap”, however, “we are looking for the end of the earnings downgrades cycle as a buy signal for the sector”.
KBW maintains its Underweight on the sector. “The economic outlook is still challenging, sector earnings estimates have been downgraded again and we continue to see future negative earnings revisions”.
“The combination of a weak 4Q07 and deteriorating conditions in 1Q08 have resulted in KBW cutting its 2008 and 2009 sector EPS forecasts by 19% and 10%, respectively, since the end of 4Q07. The estimate cuts are the result of lower revenues and higher loan loss charges. Investment Banks felt the brunt of the changes. Our estimates now point to sector earnings growth of -6% YoY in 2008 and +16% YoY in 2009, respectively, after adjusting for structured credit writedowns”, it added.
“We believe the earnings forecasts risks remain mostly to the downside. In the short term, continued writedowns and weaker wholesale / market revenues could prove most challenging to earnings expectations. In the long term, earnings downgrade risks are asset quality deterioration, structurally lower returns, lower loan growth and margin pressure. KBW is now 14% and 4% below consensus for 2008 and 2009”, it concluded.
Related Articles
LATEST NEWS
24/04