Capital market analysts say the main stock exchange listed banks, BRD (BRD.RO) and Banca Transilvania (TLV.RO) are already past the critical moment and continue to expect an improvement on results reported in the second quarter of 2011.
Banca Transilvania’s profit went up 7% in lei in the second quarter against the first quarter, to around 34 million lei (EUR8.05 million), and BRD’s profit went up by 31.1% in lei, to nearly RON160 million (EUR38 million).
“BRD results were much higher than my expectations and than market expectations because of lower provisions and amid an increase in revenue, especially interest revenue,” says Adriana Marin, head of the research department of UniCredit CA IB Securities brokerage firm.
She adds that she has reservations as to improving the price target for BRD shares because the bank could allocate more money in the second part of the year to set up provisions for non-performing loans after the bank reached a provision high in the last three months of 2010. Marin also says that, as far as the results of Banca Transilvania are concerned, there were no major surprises, with the profit being 1% lower than her estimate.
UniCredit CA IB Securities has a target price of RON16.65 per BRD share, 23% above Tuesday’s stock quote and of RON1.4 per Banca Transilvania share, a 21% growth potential.
While the share of non-performing loans continued to increase at most banks, they allocated less money for provisions in the last few quarters, a situation explained by analysts by the fact that lately banks have been reluctant to grant unsecured loans, so provision requirements are lower.
The latest data to emerge at the end of May show that the share of overdue payments to overall loans reached a new high of 9.01%, but analysts believe the worst is behind for the major banks on the market.
“Banca Transilvania was more cautious with provisions and included in its balance sheet provisions above the level required by the norms of the [central bank], which can at some point turn into revenue for the bank. As for BRD, I think it was a little too early to cut provisions so much,” Adriana Marin says.
Andrei Radulescu, analyst at Target Capital, says BRD shares are expensive and recommends selling them for a target price of RON12.98/share.
“BRD shares are among the most expensive in the region, trading at higher multiples than comparable banks in Austria, Poland and Hungary. Why are they expensive? A reason would be that those who want exposure to Romania also buy bank shares,” says Radulescu. “They bought shares in order to be the first, awaiting the recovery of the economy and a stabilization of the internal situation, and now, in the context of the external crisis, are waiting to see what happens. Banks will also report results according to IFRS standards, which they expect to be somewhat better.”
BRD shares are currently traded at around twice their book value, while the shares of Banca Transilvania are traded at a multiple of 1. BRD’s profit multiple is higher, around 23, which compares with Banca Transilvania’s around 16.
Adriana Marin believes that if the trend in the second quarter continues, the two banks will report higher revenues, which will allow them to hit their budget targets for this year and that the rebound in terms of results will show more clearly in 2012.
(EUR1=RON4.2246).
(English version by Daniela Stoican, Editing by Loredana Fratila-Cristescu)