Sharelink Securities & Financial Services has proceeded with a bullish revision of their forecasts on Hellenic Bank Pcl (HB) profit forecasts and increased their price target on the stock to EUR 5.15 per share following the release of the above-expectation first quarter results.
At EUR5.15/share HB would be trading at a 2007F P/B of 2.6x against an estimated 3.1x for 2007F for the Greek banking sector, which is the closest comparable to the Cypriot banks due to their increasing exposure to the Greek market, notes Sharelink in their investment report dated may 23, 2007.
On a P/E multiple basis, at EUR5.15/share, HB would be trading at a P/E multiple of 11.9x, 9.5x and 8.0x for 2007F, 2008F and 2009F.
Based on the year to date results, the revised targets of the Group’s Management on the RoE and the cost to income ratio for 2007, Sharelink have re-visited their assumptions and adjusted their net profit forecast to reflect the new fundamentals of the Hellenic Bank Group.
Sharelink are now forecasting net profit of EUR105.2 mln for 2007, EUR131.5 mln for 2008 and EUR155.8 mln for 2009, compared with previous estimates of EUR 70.8 mln, EUR 85.5 mln and EUR 100.3 mln. “We also believe that the risk to our earnings forecasts is on the upside, and gradual upgrades on a quarterly basis should not be ruled out, given the Group’s track record in exceeding Management’s targets,†notes Sharelink.
Based on their forecasting model, Sharelink currently forecast a RoE of 24.6%, 24.8% and 25.0% for 2007, 2008 and 2009, compared with previous estimates of 17.6%, 18.0% and 18.4%. Based on the figures, Sharelink estimate an EPS CAGR of 46.0% for the period 2006-2009, excluding investment-related profits reported in 2006, part of which may not be recurring. This is supported by the Group’s income enhancement plans, its cost containment efforts, its efforts to improve the quality of its loan portfolio, and its efforts to turn-around the Greek operations.
Sharelink analysts are pinning their hopes on a steady recovery in Greece with the number of branches set to increase by 5 in 2007 and 7 in 2008-09 with the HB Group reporting profits from its Greek operations. Other positive factors are efforts to strengthen the International Businesses Division– including possible expansion of presence in other countries (Russia, the Balkans). HB aims to take further advantage of Cyprus as an international financial centre which offers specific advantages for corporations operating in Russia and other countries of ex-Soviet Union as well as corporations that invest in these countries.
Taking advantage of the increased liquidity expected to arise from the relaxation of the minimum liquidity reserve requirements, and also further developing the Investment Services Division. Taking advantage of emerging opportunities in the Insurance and Retail markets. Management noted that the focus in Cyprus is on the sectors of retail banking, insurance services, and international business. The development of insurance operations has been an area of particular importance to Group strategy. With regards to its life insurance operations, unit-linked funds, offering these directly to its clients without the use of an (expensive) agents network. On the General insurance side, the Group targets the improvement in productivity and tight risk management policies, coupled with premium price increases, in order to allow its general insurance subsidiaries to increase their profitability further. It should be noted that HB has the lowest non-interest income to total income ratio among its domestic competitors, the highest cost to income ratio, and only a small share in non-banking operations such as life insurance.
