Goldman Sachs removes Bank of Cyprus from Conviction List

Goldman Sachs (GS) have removed Bank of Cyprus from their Conviction Buy List but have maintained their positive view on Bank of Cyprus’s balance sheet structure and long-term growth potential, and reduced the price target from EUR 11.50 to EUR 11 per share, which still implies an upside potential of 24% from current levels of EUR 8.8 per share.

Since BOC shares were added to list on June 6, 2008, the stock is down 5.8% vs. -10.1% for FTSE World Europe and -10.8% for European banking universe (over 12 months, the stock is down 24% vs. the index down 23%). GS analysts say they maintain their Buy rating.
GS says its positive view stems from the bank fitting its preferred themes: (1) one of the most liquid balance sheets in Europe; (2) sound capital position with limited exposure to capital markets; (3) attractive exposure to high growth markets, thanks to its market-leading position in Cyprus and the international banking business; and (4) a maturing Greek network and expanding banking operation in Russia/Ukraine, which could provide potential upside to our forecasts if executed successfully.

“While our positive view on long-term potential and fundamentals remains unchanged, supported by recent results and trends, we see two potential risks to share price performance in the short term: (1) sovereign CDS spreads for Ukraine, Russia and Romania (c.10% of group profits and contributing 30% of GS net income growth in 2007-10E) have picked up significantly since the end of June, suggesting an increase in the risk profile of some key markets for the bank’s future growth; (2) strong relative performance means the bank has re-rated significantly versus its peers: it is now trading on 2009E I/B/E/S consensus P/E at an 11% premium to Greek banks and 3% to Russian banks (3% and 35% discount in June).”
“Our new 12-month SOTP-based price target of EUR11 (EUR11.5 previously) implies 24% potential upside. Key risks include macroeconomic deterioration in Cyprus and SEE, worse than expected trends in margins,” say GS analysts.