Turkish Banks: Glass half full (Akbank & Vakifbank downgraded to HOLD; Garanti stays BUY; Yapi Kredi upgraded to BUY; Isbank stays HOLD)
We still see the glass as half full at the Turkish banks, despite the headwinds and deteriorated narrative in 2H18. Holding onto these banks has yielded disappointing long-term returns, over the past 10 years, and we believe that passive multi-year positions could still be affected if the TRY is not defended assertively. However, in a 6-12-month horizon, we see the banks as an interesting proposition, as we would expect them to benefit from a compelling combination: a GDP pick-up and rate cuts. As always, we use common sense in our valuations as these banks trade at 1-1.2x P/TBVs at the most in good times. However, a comparable scenario played out well for Sberbank in 2015, and the stock doubled within two years. The challenges were no less dire in Russia. Turkish fat tail risks remain, which are binary and not quantifiable. However, we believe the discount rates applied to Turkish assets broadly capture the heightened risks. We also do not believe that the banks are under provisioned in a recovery scenario. Our top picks are Garanti (BUY, PT TRY 11.27/share, 3.6x P/E and 0.6x P/TBV for 2020E) and Yapi Kredi (BUY, PT TRY 2.49/share, 2.8x P/E and 0.4x P/TBV for 2020E).Akbank is a commercial bank. Co. operates in five segments: Retail banking offers a range of retail services, such as deposit accounts, loans, credit cards, insurance products and asset management services; Corporate and Small and Medium Size Enterprises banking provides financial solutions and banking services; Treasury Activities conducts regional and foreign currency spot and forward transactions, bonds and other domestic securities; Private banking offers banking and investment transactions for upper-income groups and the International banking provides services for foreign trade financing and Turkish Lira clearances, and money transfers through agent financial institutions.
Turkiye Garanti Bankasi is a private banking group based in Turkey. Co. operates as an integrated financial services group in every segment of the sector including corporate, commercial, SME, payment systems, retail, private and investment banking together with subsidiaries in pension and life insurance, leasing, factoring, brokerage, and asset management. Co. provides a range of financial services to 13 million customers through a distribution network of 994 domestic branches; 6 foreign branches in Cyprus, Luxembourg and Malta; 3 international representative offices in London, Dusseldorf and Shanghai with more than 4,152 ATMs, a Call Center and internet.
Turkiye Is Bankasi is a commercial banking group based in Turkey Co. is engaged in the provision of private, retail, commercial and corporate banking, money market and securities market operations as well as international banking services. Co. provides services to corporations, SMEs and other trading companies (excluding real trading persons) within the course of its corporate and commercial operations. Co. is organized into two main business segments: Banking segment, which includes corporate, retail and private banking, as well as treasury; and non-banking operations, which are followed according to insurance, ‘investment and finance' and ‘manufacturing and trading' segments.
Turkiye Vakiflar Bankasi (Vakifbank) is a banking and financial services company based in Turkey. Co. offers products and services that cover corporate, commercial, investment and small-scale enterprise banking as well as the retail and private banking sectors. Co. also provides financial leasing, portfolio management, real estate, insurance and factoring services through its financial participations. Co.'s deposit products include time and demand deposits, as well as loans comprise spot loans, foreign currency indexed loans, consumer loans, automobile and housing loans, working capital loans, gold loans, foreign currency loans, eximbank loans, and pre-export loans.
Yapi Ve Kredi Bankasi is a financial services group. Co. serves its customers through its retail banking segment comprising of individual banking, Small and Medium Size Enterprises banking and card payment systems, corporate and commercial banking as well as private banking and wealth management segments. Co.'s operations are supported by domestic subsidiaries in asset management, brokerage, leasing and factoring as well as international banking subsidiaries in the Netherlands, Russia and Azerbaijan. As of Dec 31 2014, Co. had total assets of TL194.96 billion and total deposits of TL107.63 billion.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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