Erste Bank: Short-term profit hit but fast recovery expected (stays BUY)
We keep Erste Bank as a BUY, and set our new 12M price target (PT) at EUR 29.5/share, offering 24% upside. We consider the bank to be entering the current negative asset-quality credit cycle in quite good shape: i) capital ratios are peaking (CET1 at 14.1% as of 3Q20); ii) the NPL ratio is at historical lows (2.4% as of 3Q20); iii) coverage ratios are also peaking (at >95% as of 3Q20); and iv) the overall business mix seems to be relatively free from the legacy issues that affected the financial performance negatively from 2012-14 (e.g. FX mortgage portfolios, a credit boom, especially in Romania and among large corporates), at least to the extent that we can judge. We expect Erste’s earnings to be hit by the pandemic, but it should power through in relatively good shape, in our view, and take advantage of the recovery phase. Most of the upside comes from our medium-term expectations of a credit-cycle recovery but, at the same time, we factor in a flat market interest rate environment until 2022E. Should there be a reversal in the market interest rates outlook, we could see more upside to our medium-term earnings.Erste Group is a financial services provider based in Austria. As of Dec 31 2015, Co.'s total assets amounted to Euro199,743 million and the number of customers was approximately 16.5 million. Co.'s key business is the retail business, covering the entire spectrum from lending, deposit and investment products to current accounts and credit cards. In addition to providing financial services to private individuals, Co.'s core activities also include advisory services and support for corporate clients in financing, investment and access to international capital markets, public sector funding and interbank market operations.
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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