Erste - Basically In Line Results, Trends Remain Robust

Erste - Instant Earnings Comment

Recommendation:  Accumulate (unch.)

Target price (12M): EUR 37.3 (unch.)

• Erste reported EUR 491 mln profit in the third quarter, up 8.2% y-o-y and up 38.4% q-o-q (quarterly there was a negative one-off in Romania thus Q3 was actually lower on less net trading income and provision write-backs).
• This figure is slightly above consensus estimate of EUR 480 mln (+2.3%) and mainly in line with our EUR 494 mln estimate.
• On the positive side, NII and Net F&C improved 1.6% and 2.3% q-o-q, respectively. Net interest income grew, driven by Austrian NII thanks to money market activity and adjusted accruals for savings product which is partially a one-off. This compensated the fall in the Other segment while CEE subsidiaries overall remained sound. With regards to the NIM, margins declined q-o-q by 4 bps on average interest bearing assets to 214 bps while remained stable on total assets. This was driven mainly by NIM compression in Slovakia.
• Net F&C was also good due to higher activity in payments, lending and particularly asset mgmt. The mgmt’s EUR 2 bln for 2019 is achievable in our view, given the seasonally stronger Q4.
• Cost-to-income ratio remained flattish q-o-q at 56.3% and down 330 bps y-o-y as a result of significantly lower IT expenses though mgmt. said it is not yet the result of the cost saving plan.
• Risk cost remained low with NPL ratio a bit down to 2.7%, coverage stood at 76.9%.
• CET1 ratio declined to 13.1% but this does not incorporate interim results, nevertheless still stood at comfortable levels (pro forma 13.5%).
• Loan to deposit ratio remained healthy with 91.1%. Performing loan book grew 1.7% q-o-q and 6.9% y-o-y driven by Hungary, Romania while CZ business was lower as a result of weaker repo business.
• The Bank confirmed its outlook and guidance of ROTE above 11% (first 9M 11.6%).
• Opinion: We stick to our first read in the morning that Erste reported sound results but it was broadly expected. The Bank should easily meet its FY guidance and investors should watch out for capital returns next year as earnings growth will be moderate in our view. Erste is interested in mBank though mgmt. said it should make economic rational. Also, mBank is not a top market player in Poland so it is a question whether it would be a serious intention of the Austrian bank.
• The bank tax in Romania may be scrapped during next year, at least new govt officials are communicating that recently. Should this happen, Erste could save up EUR 10-20 mln annually, but earnings impact should be moderate as presumably banks passed this bank tax to customers (without pass through, the impact on fair value would be EUR 0.4 per share). All in all, we keep our positive stance on the Bank and maintain our Accumulate rating and EUR 37.3 price target.

 

 

Hai Thanh Le Phuong, CFA
Head of Research

CONCORDE SECURITIES LTD.

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55-61 Alkotás street, H-1123 Budapest.
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