Bank Handlowy: cash is king – dividend in the limelight (stays BUY)

We keep Bank Handlowy as a BUY and raise our new 12M price target (PT) to PLN 96.4/share (from PLN 74.6), offering 25% upside potential. Our higher PT is due to our materially increased 2022-24E net profit forecasts. We see Handlowy’s 4Q22E preliminary results, due on 8 February, as a potential catalyst, as the results could reassure the market on the level of dividends, which we consider very appealing currently. We forecast a DPS of PLN 12, a 100% payout ratio, and a 15%+ dividend yield on the current market valuation. We also believe that the very solid dividend payouts may last for longer. Handlowy is trading at our 2023E P/E of 6.9x, not demanding, in our view, and below the 5Y average 12M FWD consensus P/E of 12.3x. Handlowy trades at a discount on headline 2023E P/E multiples, when we take into account the risk of a credit holidays extension in the Polish banking sector. This discount shifts to a premium over time, as we expect the EPS to descend at Handlowy, but we see a key return for investors hidden in a cash dividend payment. Our 2023E P/BV multiple of 1.2x is higher than the 5Y average consensus ratio of 1.0x, but we note that we forecast the ROE at well above 15% for the next two years, while the 5Y average consensus ROE expectations in the past have ranged at c.7-8%, prior to the inclusion of the 2022E forecasts.