Banks | Poland Recommendation upgrade
mBank We upgrade our rating to Neutral from Sell , with TP
slightly down to PLN 441 from PLN 443
Neutral (from Sell) We cut our adjusted net profit estimates by 11% in
2018E and by 10% in 2019E.
TP: PLN 441
All prices are those current at the end of April 17 , 2018,17:30 unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Da ta is sourced from Vestor DM and subject companies. Investors should consider this report as on ly a single factor in making their investment decision. This document is an investment research within the meaning of article 36.1 Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Dire ctive 2014/65/EU of the European Parliament and of the Council as regards organizational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive.
19 April 2018 08:00
Upgrade to Neutral after the share price drop.
We trim our 12M TP for mBank to PLN 441 from PLN 443 previously, but due to share
price drop we upgrade our rating to Neutral (from Sell ). Sale of an organized part of
mFinanse coupled with 1Q18E results and changes in expected interest rates cuts
prompted us to cut our earnings estimates for mBank by 11 /10 % in 2018 /19 E. Our
forecasts are 5% below consensus, that – in our view – does not fully reflect revenues
lost due to sale of mFinanse. Due to poor NIM -CoR profile mBank remains one of the
least profitable banks in our coverage (in 2018/19E we expect 8.0/8.6% ROE vs. 9.6/
10.5 % sector median ). However, it offers decent EPS growth (9/15% YoY in 2018/19E),
is capable to pay dividend and has been co ntinuously reducing its FX mortgage
exposure. Thus, we see its current valuation at 15.6x 2018E P/E and 1.2x P/BV as fair .
In this note we present also 1Q18E preview for all the 9 banks in our coverage.
1Q18 driven by one -off . We expect mBank to report 1Q18 net profit of PLN 377m (72%
YoY) driven by one -off gain on sale of mFinanse. We expect adjusted earnings though to
drop 6% YoY (to PLN 287m) negatively affected by higher provisions (74% YoY) and costs
(5% YoY) that should mo re than offset strong NII (10% YoY ) and F&C (5% YoY).
We cut our 2018/19E estimates by 11/ 10 %. Sales of mFinanse coupled with 4Q17
results and changes in expected interest rates cuts (we now assume 25bp hike in 4Q19
vs. 2x25bp in 3/4Q18 previously) prompte d us to cut our earnings estimates by 11% in
2018E and by 10 % in 2019E. Our 2018/19E forecasts are 5% below consensus.
We expect downgrades in consensus estimates . In March 2018 mBank finalized sale of
an organized pa rt of mFinanse. The bank expects to report PLN 177m one -off gain in
1Q18 and up to PLN 190m spread over the next 6 years. According to our estimates the
sold part of mFinanse added to mBank’s 2017 consolidated revenues c. PLN 90m ( 10%
of net fee income ). However, s tarting in 2Q18 it will no longer support the bank’s
revenues , what - in our view – is yet not fully reflected in consensus estimates.
Valuation sounds fair . At our forecasts mBank is trading at 15.6x 2018E P/E and 1.2x
P/BV, with 4% premium and 10% discount to peers, respectively. Given expected EPS
growth on one hand and below average profitability on the other hand, we see its
current valuation as fair .
CHF risk declining, but still on . While mBank has been successfully reducing its FX
mortgage risk, with 21% share of FX mortgages in total loans it remains one of the most
exposed Polish banks. We maintain our assumption of PLN 4.8bn FX conversion sector
cost resulting from a quarterly contribution at 0.2% of FX loan book , that would consume
c. 13 % of net profit in the first year and 4% of BV over the next 5 years .
Figure 1. mBank – Key data , 201 5-20 20 E
2015 2016 2017 2018E 2019E 2020E
Adjusted net profit (PLNm) 1 180 996 1 092 1 191 1 371 1 504
YoY change (%) -8% -16% 10% 9% 15% 10%
Adjusted ROE (%) 10.1% 7.9% 8.0% 8.0% 8.6% 8.9%
P/E (x) adjusted 15.7 18.6 17.0 15.6 13.6 12.4
P/BV (x) 1.5 1.4 1.3 1.2 1.1 1.1
DPS* (PLN) 0.0 0.0 5.1 9.9 13.3 14.6
DY* (%) 0.0% 0.0% 1.2% 2.3% 3.0% 3.3%
* from the year’s earnings. Source: Company data, Vestor DM estimates
Target Price (PLN) 441.0
Market Price (PLN) 439.2
Upside/ downside 0%
Previous rating Sell
Previous Target Price (PLN) 443.0
Min (52W) 372.7
Max (52W) 538.0
Market cap ( PLNm ) 18,583
Avg. 3M Turnover (PLN m) 7.8
Commerzbank AG 69.4% Other 30.6% Company description
mBank is the fourt h largest bank in Poland with almost 7% market share in assets and 271 branches. The bank has a strong exposure to corporate loans (44% of the loan book) and FX mortgage loans (21% vs. 17% PLN mortgage loans). Consumer loans constitute 15% of mBank’s loan book. mBank vs. WIG vs. WIG Banks 12M relative price performance rebased
Source: Bloomberg, Vestor DM
Head of Research
(+48) 22 378 9212
kwi 17 lip 17 paź 17 sty 18 kwi 18
MBK WIG WIG Banki
mBank | April 2018
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This report has been prepared by Vestor Dom Maklerski S.A. (“Vestor”), with its registered office in Warsaw, al. Jana Pawła II 22, 00 -133 Warsaw, registered by the District Court for the capital city Warsaw, XII Commercial Division of the National Court Register under the number KR S 0000277384, Taxpayer Iden tification No. 1080003081, with share capital amounting to PLN 1 811 570 fully paid up, entity that is subject to the regula tions of the Act on Trading in Financial Instruments dated July 29th 2005 (Journal of Laws of 201 7, item 1768 - consolidated text, further amended), Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies dated July 29th 2005 (Journal of Laws of 2016, item 1639 consolidated text, further amended), Act on Capital Market Supervision dated July 29th 2005 (Journal of Laws of 2016 item 1289 consolidated text, further amended).
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mBank | April 2018
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THE LAST RECOMMENDATION ISSUED TO THE COMPANY MBANK S.A. WAS PUBLISHED ON THE 8 rdOF JANUARY 2018 AND INCLUDED A SELL RECOMMENDATION.
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Note on what the eval uation of equities is based:
Buy/Accumulate/Neutral/Reduce/Sell – means that, according to the authors of this document, the stock price may perform materially better/better/neutrally/worse/materially worse than the cost of equity of the respective stock.
The recommendation system of Vestor is based on determination of target prices and their relations to current prices of finan cial instruments; in addition, when recommendations are addressed to a wide range of recipients, two methods of valuation are requi red.
In preparing this document Vestor applied at least two of the following valuation methods:
1) Discounted cash flows (DCF),
2) Comparative valuation (including ROE -p/BV model),
3) Target multiple,
4) Scenario analysis,
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5) Dividend discount model (DDM),
6) net asset value (NAV),
7) Sum of the parts,
8) Discounted residual income model (DRIM),
9) Risk -adjusted net present value (rNPV).
The discounted cash flows valuation method (DCF) is based on discounted expected future cash flows. The method includes all cash flows the issuer is expected to generate in a given period and the cost of money over time. However, the DCF valuation method requires a number of assumpt ions and is very sensitive to changes in parameters used in the in the model. Small changes in assumptions may result in material changes in the valuation.
The comparative valuation method is based on the rule of “one price”. The advantages of the method include 1) a small number of parameters to be estimated, 2) the fact that there is a relativ ely large number of indicators for companies being compared, 3) The method is well -known among investors, 4) valuation is based on current market conditions. On the other hand, a comparative valuation is strongly sensitive to the valuation of the companies classified as peers and may lead to a simplified picture of the company valued.
The target multiple valuation approach is based on the assumption that the value of the company should be equal to pre -specified values of selected price multiples. The advan tage of this method is its simplicity and applicability to almost all of the companies. The target multiple approach is a hig hly subjective method, though.
The scenario analysis approach is based on the probability weighted valuation for three sets of ass umptions: Bear case , base case and bull case with a different probability assigned. The base case is based on the assumptions included in financial forecasts and DCF valuation. The bear/bull case scenarios present a sensitivity towards negative/positive changes in various assumptions including market size, market shares, profitability, growth, capex, valuation multiples etc. The advantage of this method is presentation of various scenarios and valuation sensitivity. A complexity and sensitivity to probab ility weights assumption may be found as disadvantages.
The dividend discount model (DDM) valuation is based on discounted future dividends that are expected to be paid out by the c ompany over a period of time. The DDM model includes real cash streams that are expected to be received by shareholders and may be applied to companies with long -term dividend payout history. However, the DDM valuation method requires a number of assumptions.
The net asset value (NAV) approach considers the underlying value of the company’s individual assets net of its liabilities. Among the advantages of the NAV approach are its applicability to asset holding companies and the fact that data required are usually easy to reach. On the o ther hand the NAV approach does not take in to account future changes in revenues or income and can underestimate the value of intangible assets.
The sum of the parts approach values a company on the back of valuations of its separate divisions. The method is applicable to companies with very differ ent business profiles, but requires identification of peers for business divisions comparison, what may be difficult to achieve.
The discounted residual income model includes equity at the end of a given financial year, excess equity (return on equity ov er cost of equity) the company is expected to generate in the estimation period and a discounted residual value post -estimation period. On one hand, the method includes profitability of the company compared to a cost of equity, but on the other hand it is st rongly dependent on a number of parameters and assumptions.
The risk -adjusted net present value (rNPV) is a method used to forecast future cash flows in high -risk projects. In biotechnology, rNPV method involves forecasting future cash flows and applying p robability rates of different phases of drug development. The main advantage of this method is the fact that it takes into account probability of success. The disadvantage of this method is the large number of assumptions and the high le vel of computationa l complexity.
Terminology used in the recommendation:
P/E – price -earnings ratio
PEG - P/E to growth ratio
EPS - earnings per share
P/BV – price -book value
BV – book value
EV/EBITDA – enterprise value to EBITDA
EV – enterprise value (market capitalization plus net debt)
EBITDA – earnings before interest, taxes, depreciation, and amortization
EBIT – earnings before interest and tax
NOPAT – net operational profit after taxation
FCF - free cash flows
ROE – return on equity
WACC - weighted average cost of capi tal
CAGR – cumulative average annual growth
CPI – consumer price index
COE – cost of equity
L-F-L – like for like
Buy - indicates a stock's total return to exceed more than 1.5x respective cost of equity over the next twelve mon ths.
Accumulate - indicates a stock's total return to exceed more than respective cost of equity over the next twelve months.
Neutral - indicates a stock's total return to be in range of 0% to respective cost of equity over the next twelve months.
Reduce - indicates a stock's total return to be in range of minus respective cost of equity to 0% over the next twelve months.
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Sell - indicates a stock's total return to be less than minus respective cost of equity over the next twelve months.
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List of all recommendations issued by Vestor in the last 12 months: Company Recommendation Date Analyst TP Current price at the time of publication of the recommendation
Recommendation Time horizon
Archicom 2017 -04-19 Marek Szymański 22.5 16.2 Not rated 12M Grupa Azoty 2017 -04-25 Katarzyna Włodarczyk 62.1 68.9 Sell 12M Mercator Medical 2017 -04-27 Aleksandra Jakubowska 25.1 18.0 Not rated 12M KGHM 2017 -05-11 Marcin Stebakow 121 116 Neutral 12M JSW 2017 -05-11 Marcin Stebakow 112 78 Buy 12M 11 Bit Studios 2017 -05-12 Jakub Rafał 255.8 177.2 Buy 12M Warimpex 2017 -05-29 Marek Szymański 5.66 5.11 Not rated 12M Kruk 2017 -06-02 Michał Fidelus 316.0 300.9 Neutral 12M Vigo System 2017 -06-12 Beata Szparaga -Waśniewska 468 372 Not rated 12M Ciech 2017 -06-13 Katarzyna Włodarczyk 72.3 65.4 Neutral 12M Wawel 2017 -06-14 Marcin Stebakow 1368.0 1175 Buy 12M Colian 2017 -06-30 Marcin Stebakow 3.48 3.50 Not rated 12M Marvipol 2017 -07-13 Marek Szymański 18.0 12.7 Not rated 12M PKO BP 2017 -07-24 Michał Fidelus 34.0 35.8 Reduce 12M Pekao 2017 -07-24 Michał Fidelus 140.0 128.0 Accumulate 12M BZ WBK 2017 -07-24 Michał Fidelus 349.0 362.5 Reduce 12M mBank 2017 -07-24 Michał Fidelus 380.0 460.0 Sell 12M ING BSK 2017 -07-24 Michał Fidelus 191.0 189.0 Neutral 12M Handlowy 2017 -07-24 Michał Fidelus 71.0 68.1 Neutral 12M Millennium 2017 -07-24 Michał Fidelus 7.1 7.5 Reduce 12M Alior 2017 -07-24 Michał Fidelus 68.0 60.5 Accumulate 12M Getin Noble Bank 2017 -07-24 Michał Fidelus 1.58 1.45 Neutral 12M Grupa Azoty 2017 -07-28 Katarzyna Włodarczyk 75.0 67.6 Accumulate 12M JSW 2017 -08-09 Marcin Stebakow 102.0 90.5 Buy 12M Ciech 2017 -08-10 Katarzyna Włodarczyk 68.0 62.5 Neutral 12M Lotos 2017 -08-21 Beata Szparaga -Waśniewska 56.0 51.0 Neutral 12M Getback 2017 -08-25 Michał Fidelus 26.6 21.8 Accumulate 12M KGHM 2017 -08-28 Marcin Stebakow 153.0 126.0 Buy 12M Wawel 2017 -08-30 Marcin Stebakow 1153 990 Buy 12M Mercator Medical 2017 -09-07 Aleksandra Jakubowska 23.1 18.0 Not rated 12M Kruk 2017 -09-14 Michał Fidelus 340.0 311.0 Accumulate 12M Bogdanka 2017 -09-21 Marcin Stebakow 95.0 78.0 Buy 12M JSW 2017 -09-28 Marcin Stebakow 107 93 Buy 12M MZN Property 2017 -10-04 Aleksandra Jakubowska 2.0 1.45 Not rated 12M Warimpex 2017 -10-11 Marek Szymański 7.3 6.73 Not rated 12M ATC Cargo 2017 -10-13 Marcin Stebakow 3.0 2.0 Not rated 12M LPP 2017 -10-19 Marek Szymański 6962.0 7960.0 Sell 12M CCC 2017 -10-19 Marek Szymański 322.0 265.3 Buy 12M PKO BP 2017 -10-24 Michał Fidelus 35.0 36.7 Reduce 12M Pekao 2017 -10-24 Michał Fidelus 139 125.2 Accumulate 12M BZ WBK 2017 -10-24 Michał Fidelus 370 356 Neutral 12M mBank 2017 -10-24 Michał Fidelus 393 452.5 Reduce 12M ING BSK 2017 -10-24 Michał Fidelus 193 191.2 Neutral 12M Handlowy 2017 -10-24 Michał Fidelus 75.0 70.0 Neutral 12M Millennium 2017 -10-24 Michał Fidelus 7.7 7.55 Neutral 12M Alior Bank 2017 -10-24 Michał Fidelus 80.0 70.2 Buy 12M Getin Noble 2017 -10-24 Michał Fidelus 1.40 1.53 Reduce 12M Marvipol 2017 -10-24 Marek Szymański 19.0 13 Not rated 12M KGHM 2017 -11-23 Marcin Stebakow 134 114.25 Buy 12M JSW 2017 -11-29 Marcin Stebakow 86.8 90.2 Reduce 12M Vigo System 2017 -12-05 Beata Szparaga -Waśniewska 455 305 Not rated 12M LW Bogdanka 2017 -12-07 Marcin Stebakow 75 95 Accumulate 12M Śnieżka 2017 -12-08 Aleksandra Jakubowska 63 69 Not rated 12M Dom Development 2017 -12-14 Marek Szymański 90 83.4 Accumulate 12M Atal 2017 -12-14 Marek Szymański 43 41.0 Neutral 12M LC Corp 2017 -12-14 Marek Szymański 3.3 2.7 Buy 12M Robyg 2017 -12-14 Marek Szymański 4.1 3.5 Accumulate 12M Lokum Deweloper 2017 -12-14 Marek Szymański 23 16.55 Buy 12M Archicom 2017 -12-14 Marek Szymański 23 15.39 Not rated 12M PKO BP 2018 -01-08 Michał Fidelus 45 44.3 Neutral 12M Pekao 2018 -01-08 Michał Fidelus 152 134.3 Buy 12M BZ WBK 2018 -01-08 Michał Fidelus 442 408.4 Accumulate 12M mBank 2018 -01-08 Michał Fidelus 443 496 Sell 12M ING BSK 2018 -01-08 Michał Fidelus 222 215 Neutral 12M Handlowy 2018 -01-08 Michał Fidelus 86 83 Neutral 12M Millenium 2018 -01-08 Michał Fidelus 8.9 9.4 Reduce 12M Alior 2018 -01-08 Michał Fidelus 87 78 Accumulate 12M Getin Noble Bank 2018 -01-08 Michał Fidelus 1.55 1.71 Reduce 12M PKN 2018 -01-09 Beata Szparaga -Waśniewska 117 106.7 Neutral 12M Lotos 2018 -01-09 Beata Szparaga -Waśniewska 54 57.4 Reduce 12M PKP Cargo 2018 -02-14 Marcin Stebakow 68 58.8 Buy 12M BZ WBK 2018 -02-21 Michał Fidelus 436 385.8 Buy 12M Wielton 2018 -02-23 Marcin Górnik 15.3 12.36 Buy 12M Selvita 2018 -03-20 Beata Szparaga -Waśniewska 85 59 Not rated 12M JSW 2018 -03-22 Marcin Stebakow 99 95.3 Neutral 12M Marvipol Development 2018 -03-26 Marek Szymański 8.9 8.7 Not rated 12M Kruk 2018 -03-28 Michał Fidelus 286 208 Buy 12M British Automotive Holding 2018 -03-28 Marek Szymański 10.5 8.3 Not rated 12M
Aplisens 2018 -04-04 Michał Wojciechowski 15.1 12.9 Buy 12M Wielton 2018 -04-05 Marcin Górnik 16.0 13.7 Buy 12M KGHM 2018 -04-16 Marcin Stebakow 110.0 92.0 Buy 12M LPP 2018 -04-18 Marek Szymański 9000 8965 Neutral 12M CCC 2018 -04-18 Marek Szymański 310 272 Buy 12M
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