Main market stocks also increase profits by 47%
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The three largest CSE banks lifted 9M06 profits to CYP 213 mln from CYP 83.8 mln a year ago in the same period for a 154% increase. The highly satisfactory performance was achieved as banks lifted income by a combined 25% to CYP 714 mln while total costs of all three major banks increased by 4% to CYP 363 mln. Additional gains from revaluation of investments, share of associate profits and lower provisions were instrumental in driving bank profitability higher.
Bank of Cyprus lifted 9M06 profits by 158% YoY to CYP 130.1 mln, Laiki lifted profits by 105% to CYP 62.6 mln, while Hellenic Bank scored the biggest rate of increase of 591% lifting profits to CYP 20.1 mln.
In the meantime, the share prices of the three banks have seen a spectacular rise with BOCY up 118%, CPB up 140% and HB up 240%, helping boost the CSE GENX by 126% since the start of the year.
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Fundamental support
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In sharp contrast to 1999 when share prices were rallying simply because ‘too much money was chasing too few shares’ without any justification in terms of fundamentals such as increasing profits, improving ratios and higher dividend, the rally which started from 2005 is different.
This time the rally in prices seems to have adequate power and is fully justified because of the strong rise in profitability of the banks, which has helped improve ratios and because of higher dividends.
Even despite the spectacular increase in share prices recorded by all three major banks the forecasted price to earnings (p/e) ratios for 2006 are reasonable.
BOCY is trading on a forward 2006 p/e of 19.6 times, CPB is at 21.6 times and HB is at 18.5 times. The ratios are set to improve further when banks revise higher their forecast profits. For example, the p/e ratio of BOCY is based on the original forecast of CYP 160 mln profit for 2006, which the bank has said it will beat and surpass. The same is true for Laiki, which is also likely to beat and surpass its first profit estimate.
Another way to look at whether a bank is expensive or not is the price-to-book-value ratio. In the case of BOCY, the P/BV is now at 3.6x, for Laiki the P/BV is at 3.4x, while Hellenic is the cheapest at 2.4x. For reference purposes, major banks in
More backing for the current stock rally comes from the steady and rising dividend policy of the banks. Bank of Cyprus raised the interim dividend for 2006 to 7c or 12 euro cents, matching the total of 2005 and is well poised to increase the dividend further. Based on the 12 euro cent dividend, the yield is 1.2%, on top of the 118% increase in the share price.
Laiki has not announced if it will pay an interim, but it is most likely to give a substantially better dividend than last year’s 6c or 10.4 euro cents.
In the meantime, Hellenic Bank also resumed its dividend paying policy after a break of four years, announcing an interim of 2c or 3.4 euro cents for a 1% yield on top of the 240% appreciation in the share price.
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More support
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The CSE rally in 2006 is not only restricted to the performance of the three major listed banks, but is broadly based and is much evident in the majority of the companies reporting their results, with a few exceptions which are showing a bubble situation.
In the Main Market category, the Financial Mirror survey found that the results of eight companies reporting profits showed a satisfactory 47% YoY increase in profits to CYP 42 mln from CYP 29 mln a year ago in the same period.
Vassiliko Cement Works (VCW) lifted 9M profits by 18% to EUR 9.8 mln, plus an interim dividend of 2.6 euro cents for a yield of 0.83%, justifying the 42% increase in the share price.
Muskita Aluminium Industries (MAI) lifted 9M profits by 23% to EUR 6.9 mln, justifying its 34% advance in the share price.
Woolworth Cyprus Properties (FWW) lifted 9M profits by 78% to EUR 4.8 mln, backing up its 154% increase in the share price.
Cyprus Trading Corp. (CTC) lifted 9M profits by 78% to EUR 5.7 mln, justifying its 85% increase in the share price.
SFS Group Pcl (SFS) lifted 9M profits by 260% to EUR 5.4 mln, plus an interim dividend of 0.346 euro cent for a yield of 1.33%, more than justifying the 124% increase in the share price.
A. Zorbas & Sons (ZRP) is the exception, showing a reduction of 4% in net profit to EUR 3.07 mln, which runs against the 11% advance in the share price.
Logicom (LOG) lifted 9M06 profits by 80% to EUR 4.5 mln, which needs to climb further in order to justify the 236% increase in the share price that appears excessive and needs further fundamental backing if it is to be sustained, otherwise there is a risk of a major correction lower if new buyers don’t step in soon.
Options Cassoulides (OPT) is also trading in over-bought situation as the 22% increase in 9M06 profits to EUR 2.08% does not justify the 143% increase in the share price. Here as well, either the profits will have to rise substantially, otherwise there is a risk of a major down correction.
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