Citi upgrades Alpha to “Buy”, ups target

Citigroup analysts have upgraded Alpha Bank to Buy/High Risk (1H) from Hold/Medium Risk (2M) increasing their target price from EUR27 to EUR32, of which EUR2 is an increase in fundamental fair value and EUR3 per share is an M&A premium, according to a company focus dated January 9, 2008.

Greek sources have been insisting of a planned merger between Greece’s largest lender, Ethniki and Alpha Bank, while other sources claim that Alpha Bank would be an ideal partner for a major multinational looking to expand into the Greek market and at the same time gain an entry into the Balkan countries, where Alpha Bank has a strong presence.

“Our higher risk rating reflects the M&A angle, which could result in greater volatility,” notes Citi Analyst Kimos Kalamboussis.

Growth in Greece remains good. Corporate growth has accelerated and Alpha is the leading corporate bank in Greece. Its SEEbusiness is Cyprus driven, and this should continue to be an upside driver.

“On fundamentals, we can easily justify a EUR29 fair value. Leading franchises are rarely available in most markets. In this case, it may be. Also, Greece remains an unusually attractive banking market, by European standards. We add EUR3 per share for M&A, derived from a range of value uplift scenarios, from EUR1.5 to several times higher,” notes Kalamboussis.

On 16th January 2008, Alpha Bank will present an update on the business plan. Management have repeatedly said that “the market” doesn’t properly value Alpha’s growth potential. What better opportunity to drive home the message? Based on the current price of EUR 24.90 per share, the Citigroup target of EUR 32.00 per share implies an upside potential return of 4%.

Citi is forecasting Alpha Bank to lift net income to EUR 887 mln for 2008 from EUR 795.3 mln forecast for 2007, which if confirmed, would imply a price to earnings (p/e) ratio of 11.5x based on current prices and a price to book value (P/BV) of 2.7x.