Erste - Basically In Line And Sound Q4 Results, Corona Creates Low Visibility
Erste - Instant Earnings Comment
Recommendation: Accumulate (unch.)
Target price (12M): EUR 37.2 (unch.)
- Erste reported net income came to EUR 247.2 mln, banging in line with our estimates and slightly better than market cons. of EUR 238 mln. The main beat came from higher NII which expanded 3.5% q-o-q and 1.6% y-o-y while other operating income and taxes were also contributors to better earnings.
- NIM improved on a total asset basis (198 bps vs 190 bps a quarter ago) on the back of CZ mainly. Net fees increased significantly due to seasonality (+2.4% q-o-q) but also thanks to the Bank’s strategy to focus on fees i.e. stronger securities business and asset mgmt.
- Costs were up y-o-y by 4.0% and 10.6% q-o-q due to higher marketing and IT costs.
- Performing loan book increased by 1.6% q-o-q driven by Hungary (+19% y-o-y), Austria, Croatia and Slovakia (+8.6% y-o-y). Deposit inflow was unchanged q-o-q, y-o-y 6.9% driven by across all geographies.
- NPL ratio came further down to 2.5% and coverage at 77.1%. CET1 ratio improved to 13.8%, a very comfortable level.
- The Bank proposes a DPS of EUR 1.5, in line with market expectations.
- The Bank did not change its ROTE guidance of above 10%, risk cost is expected to be around 20 bps (this is better than our forecast of 30bps) and mid-single digit loan growth. Obviously, the Bank mentioned the negative impact risk from the corona virus in its outlook. Mgmt said it has low visibility on a potential impact but sticks to the risk cost guidance while they are closely monitoring affected businesses.
- Opinion: Erste reported in line results, but focus now is on the corona virus. We have to assess the potential impact on banks but if the issue is temporary and is limited to the first half of the year, we believe the situation will be manageable (though Erste would be affected as well).
Erste Group is a financial services provider based in Austria. As of Dec 31 2015, Co.'s total assets amounted to Euro199,743 million and the number of customers was approximately 16.5 million. Co.'s key business is the retail business, covering the entire spectrum from lending, deposit and investment products to current accounts and credit cards. In addition to providing financial services to private individuals, Co.'s core activities also include advisory services and support for corporate clients in financing, investment and access to international capital markets, public sector funding and interbank market operations.
Concorde Securities Ltd. is Hungary’s leading independent company engaged in investment banking activities. It provides its clients with integrated financial services, including securities trading, research, corporate financing advisory, capital market transactions, wealth management and investment advisory. The operational management of the company is the responsibility of the CEO, while the owners/managers (who control one-third of the company through their shares and options) are in charge of its strategic governance. Concorde Securities Ltd. is a member of the Budapest, Frankfurt, Warsaw and Bucharest stock exchanges, as well as of the Hungarian Association of Investment Service Providers.
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