EUR 150.00 For Business Accounts Only

mBank: It is complicated

We maintain our SELL on mBank. We lower our FV by 1% from PLN 308.5 to PLN 304.7, which implies 18% downside. Our 2019E-21E NI forecasts drop by 10% to PLN 1.12bn (-15% YoY), 12% to PLN 1.17bn (+4% YoY), and 6% to PLN 1.39bn (+18% YoY), respectively, on the back of the introduction of the gradual portfolio provisioning of FX loans following the less favourable court rulings, offset somewhat by stronger core revenues. Our NI forecasts are 10%/15%/9% below consensus for 2019-21E, mainly due to expected CHF portfolio provisioning. The stock price (13.3% rise in the last 3M, outperforming the WIG Banks index dropping by 12.8%) appears sustained by M&A news prompted by Commerzbank’s Sept strategy including disposal of a 69.31% stake in mBank as part of its restructuring process. We expect the sale to gather a considerable amount of interest at the beginning. However, the biggest risk we see is how the deal will be structured and how minorities will be treated. The structure of the potential deal will depend on the type of investor it attracts. If the investor is new to the market, minorities will likely get no offer at all. in each case the final assessment will depend on the valuation of the CHF portfolio, as even in the event of a merger with an existing market player, the CHF portfolio will most likely be carved out on the KNF’s request. MBK now trades at a 2020E P/E of 13.5x, a 15% premium to Polish banks on 11.7x, and a 1.0x 2019E P/B, in line with peers, while we believe a premium is unwarranted given its insufficient profitability (COE>ROE) and CHF mortgage exposure which the market started to ignore, assuming Commerzbank would take over the risk. Meanwhile the strategy has reportedly (Bloomberg 25/10/19) been poorly received by the market including major shareholders and regulators. Thus we believe execution of the deal at a reasonable valuation and the CHF mortgage portfolio pose the major risk to the valuation.