P&K sees Marfin Popular at EUR 12.30

P&K Research, a member of the National Bank of Greece, initiated coverage on Marfin Popular Bank with an overweight bias and a price target of EUR 12.30 per share compared to EUR 9.66 prevailing prices.

In a report entitled “Marfinology – An attractive growth story with risks”, P&K says that although MPB looks like an attractive growth story, there are significant underlying risks. The lack of a track record, dependence on Marfin Investment Group (MIG), the different cultures and structures within this investment scheme together with operational risks are among factors that create uncertainty about MPB’s future.

Although MPB currently holds 6.5% of Marfin Investment Group, the revenue potential could be significant. Marfin Investment Group is the former Marfin Financial Group which was renamed after the group’s restructuring and management’s decision to sell all banking assets to MPB. It now operates as a holding company.

MPB reported impressive results for H1 2007 across the board, showing very strong business growth and profitability. Management considered revising its business plan for a second time this year. This will probably take place after the release of Q3 results.

“Applying a three-stage DDM we derive a EUR12.30 per share. On our numbers MBP currently trades at 13.0x P/E ’08 and 10.5x P/E ’09 2.1x P/BV ’08 and 1.9x P/BV 2009,” the P&K analysts noted.

Marfin Popular Bank’s primary activities are in Greece and Cyprus accompanied with small franchises in various other south east European countries. Both countries enjoy a robust macroeconomic environment with significant growth rates, low inflation and solid credit expansion rates. MPB is aiming to establish a leading presence in these markets in order to reap maximum benefit from the current macro conditions.

Moreover, the bank is continuously examining opportunities to further expand in the promising SEE markets.

In Greece, management announced in late July that the triple merger (Marfin, Egnatia and Laiki) was completed on time with no disruptions. MPB ranks seventh in the Greek market both in terms of loans and deposits as well as in terms of branch network. The benefits are outlined below:

Significant synergies derived from the three-merged banks will be fully exploited by MPB’s aggressive management through front office integration and common product offering. Marfin had an expertise in asset management, corporate and investment banking, while Egnatia and Laiki were mostly commercial banks. Synergies on the cost side are also likely to occur. Merger of product factories, streamlining of operations and the simplification of the organisational structure will work towards this direction.

A well positioned branch network of 151 branches, with a plan of almost doubling the network to reach 251 in 2010. Although not very extensive, the network is geared towards the largest urban areas effectively reaching the majority of the Greek population.

An extended advertising campaign is already in place, which seems that has already resulted in increased business volumes. The target is to increase brand awareness and to promote new innovative products.

In Cyprus MPB possesses a leading position, ranked second behind Bank of Cyprus. In terms of market shares MPB holds 18% in loans and 21% in deposits operating through the second largest network of 114 branches.

The key points from Cypriot operations are:

The well-established presence in the Cypriot market, and lined up to take advantage of the significant and favourable macroeconomic changes.

Market share gains are very likely in the future as the Co-operative banks, which currently hold nearly 1/3 of the total Cypriot market, continue to lose market share.

Synergies with Marfin and Egnatia are also likely in terms of product offering, IT infrastructure, procedures and organisational issues.

Aside from Greece and Cyprus, MPB has a small presence in the UK, Romania, Australia, Estonia, Serbia and Guernsey and maintains representative offices in the USA, Canada, Russia and South Africa. In March the bank announced that it agreed to acquire Marine Transportation Bank, which has a network of 86 branches concentrated in southern Ukraine. MPB’s investment banking team is actively looking for new investment opportunities in SEE Europe and Russia.

In Greece and Cyprus, P&K Research believes the group will now concentrate on streamlining operations across the board and grow organically. However, considering Marfin’s affinity for M&A the analysts do not exclude the possibility of seeing MPB involved in any corporate activity should the conditions be deemed as ripe for such a development.