OTP Bank: Survivor status priced in already (stays HOLD)
We keep our HOLD on OTP Bank and adjust our 12M price target (PT) to HUF 11,623 (down from HUF 13,330). OTP group is a country tycoon in Hungary, it is also a market leader in Bulgaria (after the recent acquisitions), and it has high-scale operations in countries like Croatia and Serbia. We expect OTP to continue through the crisis with relatively strong ROEs (8-10% on our current 2020-21E forecasts) and return to a solid double-digit ROE once the crisis fades away (13-14% in 2022E). However, we see this as priced in already as OTP trades at 2019-20E P/BVs of 1.3-1.2x, already pricing in a ROE above COE, which is higher for OTP than the other CEE banks due to its conglomerate structure, and its presence in higher risk profile and frontier countries. We expect an equity build up, dropping to a solid single digit (CAGR of 8% for 2019-22E), to be spiced up with some 3%+ annual dividend yield, on average. This would be a solid annual return for shareholders, but not enough to guarantee a more optimistic approach at the current valuation juncture. On top of this, OTP’s investment case carries a higher risk profile than many other regional banks, with the key being the further growth of risk charges, beyond our current core scenario. It is too soon to take it for granted that OTP will manage to emerge from the crisis without a hiccup (due to both business performance and political impact).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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