…UBS lifts BOC to CYP 7.20
Bank of Cyprus saw a barrage of upgrades and higher price targets on its share price following the release of the exceptionally good first quarter results. The new investment reports were released by UBS, Deutsche Bank, Keefe, Bruyette & Woods (Kbw) and CLR.
UBS, the Swiss banking giant kick started the upgrades on BOC by lifting its price target on the BOC shares from the previous CYP 6.03 to CYP 7.20, and maintaining its “Buy 1” rating.
UBS said the 132% year-on-year increase in BOC Q1’06 profit to CYP 37.22 mln were above its estimates, which is why the Bank proceeded to lift its year-end profitability target to CYP 150 mln.
This is in line with an official BOC statement that it will easily surpass its own full year target of CYP 120 mln in net profits that it had previously announced end of February.
Strong earnings growth were underpinned by strong revenue growth (+25%), exceptionally well contained cost (+2%) reflecting the ongoing restructuring in Cyprus and lower provisions (-9%) demonstrating the improving asset quality trends in the Cyprus market, UBS said.
In Cyprus the bank will continue benefiting from accelerating asset growth reflecting partly market share gains, strong FX based deposit growth and widening deposit spread, cost restructuring and materially declining provisioning charges.
In Greece BoC should benefit from an expanding branch network and increasing maturity, as well as from a widening deposit spread. Following the release of the Q1 06 results, UBS have upgraded its 06E/07E/08E forecasts by an average of 10% p.a., i.e. from CYP 0.25/0.34/0.45 to CYP 0.28/0.38/0.50. The key drivers have been
higher Net Interest Income, lower cost and a lower tax rate.
Deutsche Bank
Deutsche Bank analysts in their investment upgrade dated May 12 maintained their “Buy” recommendation on BOC, increasing the price target to CYP 5.60 from CYP 5.40.
Bank of Cyprus has published a good set of result, with a net profit 27% higher than expected, DB said. “If we strip the non-recurring trading gains, net profit was 11% higher than expected. On the back of these results and more details on guidance, we have increased our estimates by 10% for 2006, 6% for 2007 and 4% for 2008.”
Development of operations in Greece has continued to be strong with a volume growth of 22% YoY, an expansion of NIM by 11 bps. In Cyprus, the group has managed to gain further market shares and to increase its loan book by 16% YoY.
The cleaning of the loan portfolio, despite the change in regulation, has continued and the bad debt charge level was about 93 bps for the quarter.
Kbw
Keefe, Bruyette & Woods (Kbw) lifted its price target on Bank of Cyprus
to CYP 4.75 from CYP 4.65 previously, while increasing its operating EPS forecasts by an average of 11% for 2007 and 2008. The earnings upgrade is mainly due to a lower level of provisions, driven by a more benign asset quality evolution (particularly in Cyprus), lower costs in Cyprus and higher other revenues.
CLR
CLR, the island’s top brokerage firm was the first Cypriot firm to upgrade BOC, lifting its price target from CYP 4.95 to CYP 5.30 while maintaining its “Buy” recommendation on the shares.
Our earnings model does not as yet incorporate two important developments that are forthcoming within the next few years, namely:
Improvement in the legal framework in Cyprus to accommodate faster liquidation of tangible property on NPL. Currently BOC has total NPL of CYP 651 mln (net of interest suspense), of which CYP 344 mln is covered by tangible security, which is blocked due to the rigid legal framework, CLR said.
A possible revision could allow the bank to start earning interest on these assets, and possibly recover part of the provision loss.
CLR says the second important consideration is the expansion plan into Russia. As stated by BOC’s management, the bank aims, at the initial stage, to utilise the vast deposit base in Cyprus in US$ to build a lending portfolio in Russia. The lending activity would inherent a low risk profile given that it will be backed by deposits in Cyprus, and the objective would be to improve interest spreads in US$ by 1 to 2 percentage points. Deposits in US$ in Cyprus currently stand at CYP 3 bln, of which only CYP 100 mln is lent out.
“We will aim to incorporate these factors during the second half of the year, as information improves,” CLR said.
“We are revising our valuation for Bank of Cyprus, to reflect higher
earnings forecasts. Our new target price is set at CYP 5,30, compared to CYP 4,95 previously. The revised target price offers a 14% upside on current market prices. For this we are reiterating our Buy recommendation for the stock,” CLR concluded.
