London, UK, 05 May 2021

ProCredit Holding (PCZ): Well-positioned for further loan book expansion

ProCredit Holding (PCB) posted a c 21% EPS decline to €0.70 in FY20, but we believe it has navigated the COVID-19 crisis well, with strong 9.5% y-o-y growth in the loan book (driven mainly by investment and green loans), a 57bp cost of risk in FY20 (below its closest peers) and a solid capital base with the end-2020 CET-1 ratio at 13.3% (vs a regulatory requirement of 8.2%) and total capital ratio of 14.7% (12.6%). We believe the bank is well-positioned to continue growing its loan book by c 10% pa, in line with its target. Gradually declining loss allowances, and fee and commission income rebounding to pre-COVID-19 levels should help PCB reach its mid-term ROE target of 10%, which we model in FY23.

We have valued PCB's shares using a P/BV-ROE approach. Our fair P/BV multiple of 0.90x used in the valuation is the average of a multiple derived from a capital asset pricing model of 1.05x and a ratio implied by a regression line based on FY20 figures for peers and PCB of 0.75x. We arrive at a fair value of €11.20 per share (vs our previous fair value of €8.00/share), mostly on the back of reduced country risk premiums and bringing the valuation forward to FY21.

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