Handlowy – Still Safe
As predicted in our 2020 Investment Strategy, Handlowy has delivered outperformance in the year to date vis-a-vis the WIG-Banks benchmark, fueled by its relatively-low-risk FX and consumer loan portfolios, and reinforced by solid results for Q4 2019, not weighed down too dramatically by one-time charges. After updating our future forecasts to incorporate the fourth-quarter figures, we maintain an accumulate recommendation for BHW with a target price of PLN 63.46. We believe Handlowy's conservative approach to loan book management will help mitigate the negative impact of slower economic growth on cost of risk. Furthermore, contrary to most of its local competition, Handlowy's exposure to CHF loan risk is negligible from the point of view of earnings. Interestingly, the Bank's thin portfolio of consumer loans, which until recently was considered a flaw, has turned into a major competitive advantage in the wake of the new regimen established by last year's CJEU ruling whereby Polish banks have to pay back fees for remainder terms of prepaid consumer loans. In anticipation of the future borrower claims, most banks are having to set aside additional provisions which are setting them back tens to hundreds of millions of zlotys in net interest income. At Handlowy, however, the annual loss will not exceed PLN 9 million. Handlowy's dividend yield has been capped by a months-long share price increase, but it is still attractive at an estimated 7% in 2020 and over 6% in the following years. The Bank might be able to sweeten the dividend pot this year by tapping undistributed earnings for 2018 (the decision will be announced in mid-March). We believe BHW deserves to be traded at a premium to the rest of the Polish banking sector thanks to its safe profile. We see the premium at 12-13% on fair P/E versus an in-line current valuation of 11.3x 2020E earnings and 10.8x 2021E P/E.
Bank Handlowy W Warszawie is a Polish bank holding company engaged in a wide range of banking services for individuals and corporate customers in the domestic and foreign markets. Additionally Co. operates in brokerage operations, lease services and investment operations. Customers have access to these services at the branches, ATM's, telephone services and electronic banking services.
Set up in 1986, mBank (originally BRE – Export Development Bank) is Poland’s 4th largest universal banking group in terms of total assets and 5th by net loans and deposits at the end of June 2019. mBank has one of the oldest brokerages in Poland – we have been providing brokerage services since 1991 - and the biggest, serving about 300 ths clients.
We provide all brokerage services available in the Polish capital market (i.e. Warsaw Stock Exchange, non-public markets and forex) in a way that meets the expectations of all groups of investors, both individual and institutional. Participating in the dynamic growth of the Polish capital market since its inception, we have acquired competences and experience needed to provide the highest quality of service and we have won the trust and satisfaction of our Clients.
Over the past decade, mBank's Equity Research Team has been consistently ranked among the top research teams in Parkiet's annual institutional investor surveys (Parkiet is Poland's leading daily business newspaper). mBank analysts provide coverage on an extensive list of companies, mainly in Poland but also elsewhere in the CEE region: Austria, Czechia, Portugal, Ukraine and Hungary.
Clients get access to a comprehensive selection of research products including daily market insights, monthly roundups, macroeconomic views, industry- and company- specific analyses, investing strategies, earnings comments, etc.
We give our institutional clients numerous opportunities to connect with industry professionals, top executives, and leading analysts:
- Get direct access to senior management teams at listed companies (over 30 meetings in 2018),
- Engage in our many industry events, featuring listed Polish and global firms (in 2018, we hosted sector-themed conferences around industrials, chemical companies, telecoms, retail, and financials, and co-hosted a Best of Poland investors' with Commerzbank and the Warsaw Stock Exchange),
- Stay informed through an array of enlightening discussion panels, workshops, and briefing sessions with regulatory officials.
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