ING has confirmed its positive stance on Greek banks and initiate coverage on Cypriot banks with a positive stance. In Cyprus, ING prefer Bank of Cyprus to Marfin Popular Bank, although but they are quick to add that both will benefit from the expected growth in international banking business thanks to high oil prices and fast growth in CIS countries. Although Bank of Cyprus disappointed in its 1Q08 results due to margin pressure because of the currency change to the euro and because of pressure in Greece, ING believe all players will suffer the same margin pressure, and Marfin is no exception. Bank of Cyprus is the stronger player in the international banking business and clear leader with over 44% market share and should continue to benefit from the organic growth of that business. On valuation, both banks trade at a discount to European banks despite stronger capital positions and faster growth rates.
ING is initiating coverage on Bank of Cyprus describing the bank as one of the cheapest European banks relative to its growth potential and the strength of its balance sheet. “We initiate coverage with a BUY recommendation and a EUR14.7 target price.”
In terms of valuation, ING believe the current multiples do not reflect the growth, capital and liquidity position of the group. The bank is trading at a 2008F PER of 9.5x and P/BV of 2.3x, with an ROE of over 25%. Bank of Cyprus’ dividend yield is 5.25%. Following a cut in consensus forecasts of c.10% YTD (lower growth in Greece is a key reason), ING believe the downside risk to forecasts is limited.
ING initiate coverage of Marfin Popular Bank with a BUY rating and a EUR7.5 target price. The jewel in the crown is the Cypriot operations. The scale of its international franchise raises some doubts.
Greek operations are a concern, in ING’s view. Greek operations account for 42% of group profits, following the integration of three banks in 2006. ING expect above-market growth at Marfin Egnatia Bank that should translate into market share gains. Only as the bank approaches critical mass in 2009 with 250 branches, will we be able to determine its success in Greece. Marfin’s international operations could prove a management distraction given that there is no sizable presence in any market.
ING’s top pick among Greek banks is Piraeus Bank (BUY), as its branch network is
starting to bear fruit, and corporate lending is catching up in terms of growth. ING rate
Alpha Bank a BUY as they believe that the leadership in corporate lending should
translate into an acceleration of revenue growth. For EFG Eurobank ING reiterate
BUY rating on the stock as the ‘New Europe’ franchise should offset a weak
performance in domestic operations. ING reiterate a HOLD recommendation on
National Bank of Greece as its capital position, together with the strong weight of
deposits in their net interest income, and the political instability in Turkey, could affect the performance of the share price.
