29/09/2009 15:08
According to a Cheuvreux report released today, “Greek banks have advanced ~50% since we first turned positive in early May. However, we think that there is more upside potential ahead and we highlight below five good reasons to buy Greek banks”.
- Greek banks already comply with the expected new benchmark rate of 7.5-8.0% core Tier 1 and appear relative winners in a tougher regulatory environment. Capital gearing (hybrid as a percentage of Tier 1) is also low and <15% on average. All Greek banks have a leverage ratio of <25x.
- Even for the less liquid banks (Eurobank, Alpha & Piraeus) the L/D ratio has fallen below 120% (from a peak of ~130%). All other banks have an L/D ratio <100%. Greek households and businesses remain underleveraged vs. European averages; thus, we do not expect a long and painful credit crunch in Greece.
- We expect net earnings for Greek banks to grow by >30% in 2009E and >40% in 2010E on the back of the NIM recovery, good efficiency and slowing cost of risk. The credit cycle is not over yet and provisions are still on the uptrend. However, it seems that the rise in new NPL formation is close to a peak and we expect new arrears in 2010E to be lower than in 2009E.
- Mid-cycle returns for Greek banks will soon exceed European averages and reach 18-20% from 2011E onwards. This is well below the exceptional returns achieved in the past cycle (ca. 30%), but a realistic target in view of superior NIM of 2.5-3.0%, cost to income of 45-50% and provisioning of ca. 90-100bp (60bp in good times and 140bp in recession).
- Greek banks currently trade in line with European averages (P/TBV at ca. 1.4x). However, we think that the higher RoTE of Greek banks will gradually translate into an above-average P/TBV i.e. moving closer to 2x as returns converge towards historical averages. P/Es on a 'normalised' cost of risk appear very attractive (8x vs. historical average of 14x). We retain our buy recommendations on all major Greek banks and keep NBG and Piraeus as our Top Picks.
National Bank and Piraeus Bank are still among its top picks.
The TP for NBG stands at €30 and for Eurobank at €14.
The firm increased the TP of Piraeus Bank from €14 to €15 and for Alpha Bank from €14 to €15 too. As for the Cypriot banks, the TP of BOCY has been increased to €7 from €6, for Marfin to €4 from €3.3 and for Hellenic Bank to €1.6 from €1.4.
In Cyprus, our top pick remains Bank of Cyprus (low P/E, high RoTE, good liquidity & capital) but the valuation of Marfin Popular is also compelling (1.1x P/TBV). We have further upgraded our forecasts by ca. 6-7% and have only slightly adjusted up our target prices.
“The stock has underperformed YTD (up 34%, vs. peers up 79%) and trades at a discount (0.9x P/BV, peers at 1.4x); However, we would like to see more evidence of pre-provision recovery, NPL stabilisation and improvement in the Greek business before turning more positive”, the report added.
EPS
The estimates for BOCY EPS increased to €0.47 from €0.43, while in 2010 they are expected to reach €0.57 (from €0.53). In 2011, they will reach €0.71.
As for Marfin, the EPS will stand at €0.20 in 2009, €0.27 in 2010 and €0.40 in 2011.
Finally, the EPS of Hellenic Bank will reach €0.11 in 2009, €0.15 in 2010 and €0.23 in 2011.
- Greek banks already comply with the expected new benchmark rate of 7.5-8.0% core Tier 1 and appear relative winners in a tougher regulatory environment. Capital gearing (hybrid as a percentage of Tier 1) is also low and <15% on average. All Greek banks have a leverage ratio of <25x.
- Even for the less liquid banks (Eurobank, Alpha & Piraeus) the L/D ratio has fallen below 120% (from a peak of ~130%). All other banks have an L/D ratio <100%. Greek households and businesses remain underleveraged vs. European averages; thus, we do not expect a long and painful credit crunch in Greece.
- We expect net earnings for Greek banks to grow by >30% in 2009E and >40% in 2010E on the back of the NIM recovery, good efficiency and slowing cost of risk. The credit cycle is not over yet and provisions are still on the uptrend. However, it seems that the rise in new NPL formation is close to a peak and we expect new arrears in 2010E to be lower than in 2009E.
- Mid-cycle returns for Greek banks will soon exceed European averages and reach 18-20% from 2011E onwards. This is well below the exceptional returns achieved in the past cycle (ca. 30%), but a realistic target in view of superior NIM of 2.5-3.0%, cost to income of 45-50% and provisioning of ca. 90-100bp (60bp in good times and 140bp in recession).
- Greek banks currently trade in line with European averages (P/TBV at ca. 1.4x). However, we think that the higher RoTE of Greek banks will gradually translate into an above-average P/TBV i.e. moving closer to 2x as returns converge towards historical averages. P/Es on a 'normalised' cost of risk appear very attractive (8x vs. historical average of 14x). We retain our buy recommendations on all major Greek banks and keep NBG and Piraeus as our Top Picks.
National Bank and Piraeus Bank are still among its top picks.
The TP for NBG stands at €30 and for Eurobank at €14.
The firm increased the TP of Piraeus Bank from €14 to €15 and for Alpha Bank from €14 to €15 too. As for the Cypriot banks, the TP of BOCY has been increased to €7 from €6, for Marfin to €4 from €3.3 and for Hellenic Bank to €1.6 from €1.4.
In Cyprus, our top pick remains Bank of Cyprus (low P/E, high RoTE, good liquidity & capital) but the valuation of Marfin Popular is also compelling (1.1x P/TBV). We have further upgraded our forecasts by ca. 6-7% and have only slightly adjusted up our target prices.
“The stock has underperformed YTD (up 34%, vs. peers up 79%) and trades at a discount (0.9x P/BV, peers at 1.4x); However, we would like to see more evidence of pre-provision recovery, NPL stabilisation and improvement in the Greek business before turning more positive”, the report added.
EPS
The estimates for BOCY EPS increased to €0.47 from €0.43, while in 2010 they are expected to reach €0.57 (from €0.53). In 2011, they will reach €0.71.
As for Marfin, the EPS will stand at €0.20 in 2009, €0.27 in 2010 and €0.40 in 2011.
Finally, the EPS of Hellenic Bank will reach €0.11 in 2009, €0.15 in 2010 and €0.23 in 2011.
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