Deutsche ups profit target on BOC

Deutsche Bank has revised higher its profit and share price target on Bank of Cyprus, its second positive revision in two weeks, following the release of the third quarter results.

Despite the fact that BOC reported CYP 19 mln in third quarter profits, about CYP 2 mln short of DB’s forecast of CYP 21 mln, but the promise made by the Bank’s Executive Management of the plan to reduce the level of provisions to 1% of the total loan portfolio by 2007 from 1.28% now was instrumental in leading DB to conclude that the turnaround will continue.

DB is also heartened by the fact that costs were constrained while income grew, paying particular reference to the 12% increase in net income, as well as the decision by Management to revise its three year 2006-2008 plan in January.

DB expects the cost-to-income ratio to decline to 55% by 2007 compared to 58% targeted by the bank, which was achieved during the first nine month results and will surely be revised when the three-year plan is unveiled. DB also expects the return-on-equity to reach 15% from 13% targeted by the Management.

DB forecasts that BOC Group profit for 2005 will amount to CYP 69 mln compared to its previous CYP 72 mln target because of the shortfall in third quarter profits from its forecast. However, the investment house is forecasting that BOC Group profits will reach CYP 88 mln in 2006 compared to its CYP 87 mln previous forecast and CYP 115 mln in 2007 compared to its original CYP 100 mln forecast.

Based on the increased profit expectations, Deutsche Bank has upped its BOC share price target by 11% from CYP 2.83 in its September issue to CYP 3.14, maintaining its “buy” recommendation on the stock.