VTB - Prospering From Turbulence, But Still Much Room for Improvement

The improvement in VTB's fundamentals looks set to continue in 2018, with EPS on target to increase by over 30% and ROE to hit 10%. VTB has benefited nicely in recent months from the troubles of several large non-state banks, particularly in retail deposits, and we incorporate a more positive growth outlook for both retail deposits and loans in 2018. We think this can contribute to further (albeit mild) NIM expansion next year, but on the flipside, the cost of risk is likely to remain elevated. We make minor changes to our 10% or so ahead of consensus 2018-19 earnings forecasts (R146 bln/R170 bln), and reduce our cost of equity in line with our strategy team's view. We raise our target price from $1.90 to $2.20 per GDR and our recommendation to HOLD. As is the ritual at this time of the year, thoughts turn to whether the year ahead could be the year in which VTB finally outperforms. Its valuations may no longer look so out of whack, but we just don't see enough evidence for that to be the case.