LHV Institutional 'Siauliu Bankas (SAB1L LH) Annual Review, November 16th, 2020'
* Siauliu Bankas (hereafter referred to as ‘SAB’ or the ‘Group’) is a local Lithuanian bank established in 1992. It is controlled mostly by Lithuanian investors and the EBRD, which owns 26% of the outstanding shares. SAB is engaged in all traditional universal banking operations and has become the fourth-largest player in Lithuania, in terms of both loans and deposits, currently controlling about 8-9% of the market.* We have approached the valuation of SAB using a combination of the income and market approaches. For the income approach, we used two different models: 1) the Residual Income Model (‘RIM’), and 2) the modified Gordon Growth Model (‘GGM’), which essentially identifies the fair P/B ratio valuation for the company. For the market approach, we used a peer group valuation, which considers peer group multiples for 2020-2022E. While applying a widely-used comparative valuation approach for banking stocks, in terms of the peer group, we pay close attention to a tight correlation between ROE and P/B values for the selected peers.
* All in all, based on our current projections for SAB and other assumptions, we decided to set our fair equity value range at EUR 0.64-0.68 per share (EUR 0.60-0.64 before placing under review in March). Using the mid-point of our FVR and our forecasts for 2021, the Group would be valued at the following 2021E multiples: P/E – 9.7x and P/B - 1.0x. The key risk factors to our valuation include slower than projected growth in volumes and a significant deterioration of the economic environment in Lithuania, and Europe in general, triggered by the new wave of the COVID-19 pandemic. This report contains a full set of financial forecasts and is useful for gaining an initial insight into the company. Please also refer to the tables and charts in the attachment.
Siauliu bankas AB is a Lithuania-based company engaged in the provision of commercial banking and financial services to private and corporate clients. It offers such services as provision of bank accounts, offering the debit and credit cards and safety deposit boxes, cash and non-cash money transfers, operations with securities, currency exchange, lending and investment services, Internet banking, financial brokerage and real estate development. It also issues monetary warranties, guarantees and other warranty liabilities, as well as performs operations with payable documents, such as checks and others. The Bank has several branches, numerous client service units and subsidiaries.
LHV Bank is an independent pan-Baltic bank, based on Estonian capital. The company was founded in 1999 by two founders of Hansapank (today’s Swedbank in the Baltics) and has been offering a full range of investment services for 15 years. In May 2009, LHV received a credit institution licence allowing it to provide all banking services.
The head office is situated in Tallinn, Estonia. Cross-border services are offered in Vilnius, Lithuania and in Riga, Latvia. LHV provides brokerage (institutional and retail), asset management, banking and capital markets services. Compared to other banks, we are more innovative and have more solid experience in investment and entrepreneurship.
The Bank, together with the Group asset management company employs over 320 people. LHV Group shares are listed on Nasdaq Tallinn.
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