Erste - Sound Results In Q1, Risk Cost Guidance Gives Some Clarity
Erste – Instant Earnings Comment
Recommendation: Accumulate (unch.)
Target price (12M): Under Revision (prev. EUR 37.3)
- Erste reported Q1 came to EUR 235 mln vs. consensus estimate of EUR 222 mln and beyond our forecast of EUR 199 mln. Better results stemmed from higher NII and lower provisioning.
- Net interest income was stable on a quarterly basis, NIM and NII remained stable on ALM business while net F&C was lower 2.3% q-o-q but up 3.4% on increased fees from securities business.
- Net trading was weak due to debt securities revaluation and volatile market environment, but this was already guided in the previous earnings release to some extent.
- Cost development was favorable in the quarter, down 1% q-o-q and 0.4% y-o-y despite wage inflation. Risk costs were also lower than expected as Q1 was not yet impacted by macro deterioration. The Bank made EUR 61 mln allocations to selected customers but this was offset by Romanian recoveries.
- NPL ratio was still low in Q1, only 2.4% with coverage at 80.9%.
- Capital adequacy declined to 13.1% due to the exclusion of interim profit and prudential filter impact. Medium target of CET1 ratio of 13.5% was unchanged.
- The Bank said in its outlook that revenues are expected to decline and Erste will try to frontload provisions as much as possible. Cost-to-income ratio should increase despite ease on wage inflation, FX and lower travel expenses.
- Risk cost is expected to be in the range of 50-80bps (or EUR 800-1300 mln), overall a large drop in net profit is expected.
- Confcall highlights: Fees are expected to decline but not comparable to peers, asset mgmt. side could be stronger, moratoria participation so far stayed low, NIM development in CZ and due to rate cuts are expected to be negative (EUR 80-90 mln) but overall impact is difficult to assess due to FX volatility, investment book.
- Opinion: Risk cost expectation is relatively wide, nevertheless, we believe this is not the worst case scenario, even in the upper range. Consensus risk cost is standing at EUR 1 bln, or the mid-range, nevertheless we believe the market expects worse than this. We put our TP under revision and in light of weaker 2020 and gradual recovery, we believe the fair value should be around EUR 25-26.
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.