Citi issues EUR12 target on Marfin Popular

Citigroup has maintained its “Buy” recommendation on the shares of

Marfin Popular Bank Pcl with a EUR 12 price target following the release of the preliminary 2007 results. The Citi forecast is similar to the forecast made by Deutsche Bank, which has the same “buy” recommendation and EUR 12 price target.

Compared to current levels of EUR 7 per share, the Citigroup forecast implies an upside share price return of 71.9% if the price target is achieved while including the dividend yield of 5.7%, the total return reaches 78%.

A distinctive feature of Marfin Popular Bank is their relationship with the Emirate of Dubai. From 2006, Dubai Financial Group has owned a strategic stake in Marfin. It currently owns 20% of MPB and is seeking regulatory permission to increase its stake to 30%. Dubai is very enthusiastic about Marfin, its key strategic investment in (emerging) European banking.

Making Money Long-Term ― Dubai Financial Group (DFG) is the investment vehicle via which the MPB stake is held, and is Dubai’s main vehicle for strategic investments in the financial sector, in the Gulf and overseas. MPB is one of DFG’s largest investments. DFG looks to take strategic stakes of 20% or above, and equity consolidates its investments. Performance is measured on return on equity.

During the analyst conference call on 14th February, Andreas Vgenopoulos, MPB’s Executive Vice Chairman, noted that he expected Dubai to receive regulatory approval imminently. We are in the midst of the Cypriot presidential elections (2nd round, 24th February), and this may create a temporary pause in the approval process. As Dubai is already a 20% shareholder, Citi analysts believe permission will be granted to go to 30%.

Good Business Trends, Costs Spike ― 2007 results were reported on Thursday 14th February. Underlying business and revenue trends were in line with Citi expectations, with strong volume growth and relatively stable spreads. However, surprisingly high costs distorted the 4Q07 results, partly due to seasonal and one-off factors.

Citi analysts are forecasting EUR 627.1 mln net profit for 2008 compared to EUR 563.4 mln reported for 2007, which corresponds to a PE of 8.8x and P/BV of 1.5x with the dividend per share (DPS) seen climbing to EUR 0.40 from EUR 0.35 in 2007 and Return on Equity (ROE) of 17.4%, flat at the level of 2007.

For 2009, Citi are forecasting profit growth to EUR 796.2 mln, with the DPS improving to EUR 0.50 and the ROE at 20.1%. For 2010, Citigroup analysts forecast Marfin Popular Bank profit climbing to EUR 943.8 mln, with the DPS improving to EUR 0.59 and the ROE climbing to 21.5%.