LHV Institutional Baltic Insight, March 11th, 2020

* Coop Pank (CPA1T ET, ‘CPA’, the ‘group’) continued to report strong growth in terms of its operating volumes and the number of customers during February 2020, with sharply higher revenue and profit numbers compared to the same month last year. Although the group’s profitability slightly declined in comparison to January this year, we are satisfied with CPA’s overall year-to-date performance and expect a decent expansion to continue in the near term.
* However, there is a lot of uncertainty ahead due to the current global coronavirus situation, which can cause a notable deterioration in Estonia’s economic environment and potentially restrain CPA’s growth prospects. So far, CPA has managed to capitalise on the growing awareness of the Coop brand, the group’s close cooperation with Coop Estonia’s retail network of 340 stores across the country, and new product offerings.
* Following the IPO, raising nearly EUR 31m of new equity capital, CPA is currently overcapitalised, with the total capital adequacy ratio at 24.35% as at the end of 2019. The ambitious growth strategy presumes somewhat elevated cost levels in the medium term to achieve sufficient volumes and exploit economies of scale. Therefore, in our view, the annualised ROE of 7.4% for the two- month period ending February 2020 is understandably low, and it is anticipated to remain modest throughout this year. All in all, we consider CPA’s growth and profitability figures for the first two months of 2020 as neutral, retaining our positive stance towards the group’s development prospects in the coming years. CPA should be considered as a growth story with its unique symbiosis and potential synergies between banking and retail trade. Our fair value range for Coop Pank is EUR 1.40-1.50 (closing price as of 10 March: EUR 1.07).