OTP Bank: just too much of a discount (upgraded to BUY)
OTP Bank (OTP) is trading at our 2024-25E P/BVs of 1.0-0.9x, while it should deliver 2024-25E ROEs of 23-17%, on our current forecasts. It is also trading at our 2024-25E P/Es of 4.7-5.8x. These expectations are built on our conservative assumptions of deconsolidating Russia as of end-2024E, at zero book value repatriation and with only organic growth assumptions. At the same time, we identify OTP as having a material capital surplus and, judging from the CEO’s recent comments, management is likely to try to utilise it via further acquisitions, which could provide upside risk for our current forecasts, and add upside to our medium and long-term ROE forecasts. While we admit that OTP’s discount to its historical long-term averages may be justified (12M FWD 5Y average consensus P/E and P/BV at 7.5x and 1.1x, respectively), with a relatively higher cost of equity, due to Hungarian macro/budget risks and its current exposure to Russia, we note that our valuation and forecasts provide for this by dropping the Russian contribution to the EPS and BVPS as of next year, and our holding a relatively conservative approach towards the COE. Therefore, we have upgraded OTP to BUY (from Hold) and set our new 12M price target (PT) at HUF 21,454 (from HUF 15,207), offering 22% upside potential.OTP Bank is a financial institution based in Hungary. Co. is engaged in retail banking (account management, bankcards and Electronic sevices - OTPdirekt) corporate banking and private banking. In Hungary traditional banking operations are performed by Co. while specialized services, including car leasing, investment funds and insurance are developed and offered by Co.'s subsidiaries. Co. expands its operations throughout the region via its foreign subsidiaries. As of Dec 31 2011, Co. had total assets of HUF10,200,527,000,000 and deposits of HUF6,398,853,000,000.
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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