Bank Pekao: complicated, but not value destructive (stays BUY)

We have lowered our 12M price target (PT) slightly, to PLN 212.4/share (from PLN 227.5), as a consequence of our model adjustments. We have reduced our dividend payout ratio to 50%, from 62.5% previously, and rolled our model forward to 2027E. We are bought in to the potential equity story of Bank Pekao on its own, and see it as well positioned for a potential new lending cycle. It may also be boosted by the new management getting back on track with a decision-making process oriented towards market efficiency, which could provide the boost to its appealing organic growth market outlook. The story is currently diluted by the uncertainty over the potential purchase of a 32% stake in Alior Bank from PZU, which may be more likely than not, and could be a prelude to a full merger of the two banks. The complexity of the potential process and the high integration risks are clear headwinds to the equity story, in our view, although we believe the market valuation has more than reflected these fears. We believe the market is not giving the benefit of the doubt to management’s ability to manoeuvre through this process in an orderly fashion, without leading to EPS dilution, which does not seem to be in play, according to our analysis presented in this report. We remain BUYers of Bank Pekao.