Egnatia Financial Services have lifted their target price on the shares of Laiki Bank to CYP 3.82 from the previous CYP 3.40 following the release of the first quarter results. Based on the stock’s last price, this implies a 25% upside potential. The “Buy” recommendation is maintained.
Laiki delivered another strong set of results with 1Q06 Net Profit reaching CYP 20.3 mln (+125.9% y/y) beating estimates of CYP 15.8 mln. Profitability was driven primarily by the strong growth in Net Interest Income (+22.0% YoY), a reduction in the cost/income ratio from 61.5% in 1Q05 to 55.0%, and lower provision charges. Yet, 1Q06 will be remembered as the calendar quarter in which the foundations of the future destiny of CPB were laid with the exit of HSBC from CPB and the lead share holding role being undertaken by the Marfin Financial Group (MFG) which acquired 9,98% of CPB.
Critically, the MFG relationship appears to offer substantial value to both Groups. MFG has demonstrated its ability to deliver the tools for growth in a visionary manner whilst enjoying the support of the capital markets.
On the other hand, CPB as a more traditional banker (call it the legacy of HSBC!) can support MFG in its aspirations to consolidate the Greek smaller-sized banks’ sector and grow regionally – the plentiful well trained executive resource of CPB should prove handy. Come on top, the acquisition of Egnatia Bank SA by MFG, and should the discussions for a triparty merger of Greek operations come to fruition, CPB will participate in a Group which would have outgrown Bank of Cyprus, with a stronger footprint in Greece and ready at first instance to enhance operations in Romania (where Egnatia Bank has a presence), Serbia, and Estonia. Add to this, the impact of the Dubai Financial’s expected participation in MFG and the story becomes even more enticing, Egnatia notes in its report.
Pending the aforementioned discussions, management has given an ‘as is’ revised set of targets for 2006/2008 calling for a 2008 ROE of 18%. Egnatia proceeded with the upgrading of its previous estimates with EPS figures for 2006, 2007 increased by 23% to 23.4 and 27.7 cent respectively, yielding a 3-year EPS CAGR at 33.4%.
