Erste Group confirmed at BUY, TP EUR 36 - Rate support facilitates fight against energy woes
We confirm our BUY call but lower our 12m TP to EUR 36 (was 41) because of raising COE, consideration of windfall profit taxes in HU (and CZ) and minor cautious model adjustments in the long-termErste may be able generate ROTE of >12% until 2024e assuming not aggressive 200 bps rate hike in EA (vs. 300 bps realistic) which should be sufficient to digest increasing risk and operating costs as well as to compensate for subdued loan growth in the upcoming economic slowdown (RBIe 1.7% weighted GDP growth and 4% loan growth in 2023e/24e)
We price-in cumulative risk costs of 90 bps until 2023e (incl. overlays) which is clearly below Erstes conservative worst-case guidance of 175 bps based on full-stop of Russian gas supplies and no governments interventions which should trigger deep recession with ~4% weighted GDP erosion (RBIe 1.7% GDP growth)
Our base case profitability scenario adjusted for 45% dividend pay-outs should enable excess capital widening; however the new management would not prefer share buybacks over M&A
The stock trades at undemanding multiples of 0.7x BV on >12% ROTE, at 20% premium to European banks vs. 35-40% average premium since end-2019
Major downside risks seem shifted to 2023e due to the still high uncertainty on energy markets and potential windfall profit taxes depending on the political consensus and the hit on local budgets
Erste Group is a financial services provider based in Austria. As of Dec 31 2015, Co.'s total assets amounted to Euro199,743 million and the number of customers was approximately 16.5 million. Co.'s key business is the retail business, covering the entire spectrum from lending, deposit and investment products to current accounts and credit cards. In addition to providing financial services to private individuals, Co.'s core activities also include advisory services and support for corporate clients in financing, investment and access to international capital markets, public sector funding and interbank market operations.
The Institutional Equity Research team of Raiffeisen Bank International AG covers 85 stocks from Austria, Central & Eastern Europe with sell-side research and thus levers our local broker status with excellent company relationships. For corporates in Austria, CEE and Western Europe, we offer co-sponsored research, which includes research coverage and marketing activities to investors. Additionally, through our Spotlight Research product we also shed light on leading European small and micro-caps, seeking greater visibility with investors.
The Institutional Equity Research team consists of roughly 15 analysts, both in Vienna and the CEE countries. Our analysts provide long-standing sector expertise in tandem with profound local market know how and a sectoral approach across the entire region.
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