WOOD Flash: PKO BP - claims technological leadership in banking
PKO BP has published its 2020-22E strategy. It is targeting at least PLN 5bn of net profit in 2022E, and a 2022E ROE of at least 12%. The C/I ratio is targeted at 41% and the COR range should be 60-75bp. The bank aims to keep its dividend payout ability. The new targets reach beyond our explicit forecast period but, in general, our estimates do not seem to be far from the bank’s ambitions, admittedly leaving some upside risk. Judging from our 2021E explicit forecasts, we see COR as the key indicative number that is more optimistic in the bank’s strategy vs. our current medium-term outlook. This is likely to come within corporate segment, in our view, as comments related to consumer lending, during the management presentation, were even a touch more cautious than our current forecasts for 2021E. This aspect could drive profits higher, but we note that the most ambitious strategy element seems to be targeted ROE level. Our current 2021E ROE, as well as our long-term assumption, is 11% and, in our view, the slight potential upside we have to the profit level leads us to believe that PKO BP’s strategy may entail more aggressive dividend payout assumptions. We assume a 50% payout ratio over 2019-21E, and provide for extra dividends of PLN 1.7bn next year, arising from undistributed profit for 2018. Should higher payouts become more probable, we see more upside risk to our current valuation. We note that the strategy is based on organic growth helped by, at the most, only smaller acquisitions. Clearly, it does not provide for a material acquisition of the scale of mBank. This could lead to a materially different dynamic for its KPI outlook. In particular, as we consider PKO BP to be the most likely buyer of mBank’s assets, this could cancel dividends and pose the threat of a capital increase. Therefore, we believe that the upside stemming from the strategic targets is probably deferred (we include a special dividend in our next year’s payout ratio). The market price may be incorporating upside risks to the valuation stemming from the strategic targets only gradually, and only if a material acquisition does not change the outlook.PKO Bank Polski is a universal commercial bank offering services to both domestic and foreign retail, corporate and other clients. Co. is licensed to hold foreign exchange and currencies and sell/buy them, as well as perform a full range of foreign exchange services; open and hold bank accounts abroad and to deposit foreign exchange in these accounts. In addition, Co. conducts activities relating to leasing, factoring, electronic settlements via payment cards, as well as renders other financial services. As of Dec 31 2009, Co. had total assets of Zl156,478,685,000 and total deposit of Zl124,628,562,000. Co. operates in the Republic of Poland, Ukraine and Sweden.
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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