Addiko Bank: outlook remains good, despite increased risks (stays BUY)

We maintain our BUY rating on Addiko Bank, but have reduced our 12M price target (PT) c.9% to EUR 16.5/share (from EUR 18.1), which implies upside of c.39%. The investment thesis laid out in our initiation report, published in April 2021, remains more or less unchanged. In the longer term, in our view, investors should be focused on the progress of the loan book transformation and its acceleration and digitalisation, but the NIM, COR and, potentially, Slovenia, should be the key drivers of profitability in the short term. The CHF loan law in Slovenia poses a real threat that could affect the bank’s capital negatively, by as much as 280bps on a pro-forma basis. On the other hand, Russia’s invasion of Ukraine poses a general risk, as the bank’s direct exposure is small. Furthermore, last year, the bank received a draft SREP letter for 2022, which indicates a decline in the Pillar II Requirement (P2R) to 3.25%, from 4.1%, and the Pillar II Guidance (P2G), to 2%, from 4%. Addiko trades at 0.3x P/BV across our entire forecast period, and we believe the market does not reflect its profitability potential fully, going forward.