NLB Banka: Branded exposure to an underbanked economy (HOLD - initiation of coverage)

We initiate coverage of NLB Banka ad Skopje with a HOLD rating and a price target (PT) of MKD 20,807/share, which offers upside of c.14.6% to the 8 December closing price. We appreciate the bank’s capital, which should allow it to record growth rates similar to the market on both the assets and liability sides, together with its liquidity at market levels. The growth trajectory should more than offset the downward pressure on the NIMs and, as the bank enters the new asset quality cycle, with quite a low NPL ratio and good coverage, we project an improving COR from next year onwards, which is likely to drive profitability in future periods. The presence of a large regional and strategic investor gives some assurance in terms of NLB Banka’s capital and dividend payments going forward, in our view. At 1.0x and 0.9x our P/BV for 2021E and 2022E, respectively, and following the rise in the share price over the past couple of years, we believe the shares have mostly run out of upside potential; thus, we recommend to HOLD the shares now.