EUR 150.00 For Business Accounts Only

Bank Millennium: Significant exposure, insufficient disclosure

We downgrade Bank Millennium to SELL from NEUTRAL. We have cut our FV by 44% from PLN 8.9 to PLN 5.0 (includes a forecast loss on the CHF portfolio of PLN 2.6 per share, i.e. 34%) giving 12% downside. We have adjusted our 2019-2021E earnings for: 1) better-than-expected 3Q19 results; 2) expected result of September’s CJEU ruling concerning the return of the early repayment of consumer loan fees (annual negative impact of some PLN 80m on NII, fading over time); 3) higher BFG fees; 4) introduction of the gradual portfolio provisioning of FX loans following the less favourable court rulings (PLN 140m, i.e. 1% of the portfolio in 4Q19E and PLN 280m, i.e. 2% of the portfolio in the following years); 5) higher cost of risk on the Eurobank portfolio. Our 2019E NI is down by 19% to PLN 621m (down 18% YoY). Our 2020E forecast drops by 39% to PLN 597m (+4% YoY) and by 29% YoY in 2021E to PLN 849m (+42% YoY). We differ from consensus by -15%/-37%/-25% for 2019E-21E NI. This is partly due to different assumptions concerning CHF portfolio provisioning and costs/synergies from the merger with Eurobank. The stock price is down 36% YTD. On its 2020E P/E of 11.6x the stock trades slightly above its peers (11.3x). We believe a discount is warranted given it has the highest exposure to CHF risks with the least favourable funding structure, lack of dividend for longer than expected. Moreover, the Eurobank acquisition, which has lost some of its attraction with the latest changes to the profitability of the consumer loan portfolio following CJEU ruling concerning return of the early repayment of consumer loan fees, poses some execution risks.