OTP Bank: the damage is done (downgraded to HOLD)
We have downgraded OTP to HOLD (from Buy) and set our new 12M price target (PT) at HUF 14,442 (from HUF 18,118). We see only a small chance of OTP rebounding strongly, to converge towards what we believe is the value of the banking group on a long-term perspective, until the market has clarity on the quite-likely write-downs of assets in both Russia and Ukraine. We consider our current scenario for OTP’s financial performance in 2022-23E as very conservative. The bank trades on our 2022E P/BV of 1.3x, which we do not find strikingly cheap considering the bank’s current risk-reward profile, especially on a relative basis. Komercni Banka trades at 1.4x, and PKO BP and Pekao are at 1.1x currently. The current valuation has priced in severe losses due to the bank’s Eastern European exposures, while the long-term ROE should remain at 15%+ in the medium term. In the next few quarters, OTP needs to withstand period of higher COR and big write-downs, but should have enough capital to withstand the hit. We do not consider that the outperformance vs. its peers is justified, as the headwinds may last for more than a year and hinder the bank’s 2022-23E ROE severely.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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