Icelandic Banks: the outliers (initiating on Arion banki with a BUY and Islandsbanki with a HOLD)
Iceland resumed its journey as a frontier market last year. On our calculations, Arion banki and Islandsbanki have 1.4% and 1.0% respective weights in the MSCI Frontier markets index. We believe the Icelandic banks are a good way to diversify away from the EM/FM banks’ risks, which are tied to currency, interest rates, geopolitics and commodity prices. These banks have decent earnings power, despite their small scale and tightly regulated capital. The leverage on the banks’ balance sheets is as low as 7-8x, when measured as “assets over equity”, and the CET1 ratios 18-19%. 40% of the banks’ credit exposure is to residential mortgages, improving their earnings quality further. We initiate on Arion with a BUY (price target (PT) ISK 185/share, 17% upside) and Islandsbanki with a HOLD (price target ISK 120/share).
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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