Investor's window  |  November 07, 2012 15:33:19

Erste: why do you still think that its shares are undervalued

Erste Group Bank has strengthened this year by about fifty percent. The PX index on the PSE are so nejrůstovějším title in 2012 and not counting the small issue of AAA Auto are in front of "steamer". It is quite logical and natural that investors are starting to ask whether it has growth potential Erste exhausted and the rally of recent months is not overdone. In my opinion, but it is not, and the title is in my eyes the "Big Five" in the PX (well, except Erste and CEZ, Commercial Bank, VIG and Telefónica CR) is still the one that has the greatest potential for growth in the next year.Of course, this does not preclude a temporary correction of the previous strong growth, which should not in my eyes was a very attractive opportunity to enter into a "long" position in this title.

Erste today and Erste year ago, it's from the perspective of the investor huge difference in my opinion is still not fully reflected in the valuation of the shares in the banking group. Just remember that twelve months ago Erste investors announced huge loss of 1.5 billion because of what we then called "big autumn cleaning balance Erste". The market is mixed conflicting views on whether the path he chose to go Erste management (ie single giant loss instead of a gradual "cleaning") is correct.Today, with the passage of one can argue that it was the right way. Investors feared a year ago that Erste will have to issue new shares to meet capital requirements or regulators. EBA. Risk premium, because you requested is now almost certainly irrelevant. Not only because it is already moving Erste relatively comfortable boundaries of key capital adequacy, but in addition to that already appears to be almost resolved second risk associated with qualified minority shares in the Austrian savings banks in regulatory capital.

It does not mean that Erste already completely won, especially in the current harsh economic environment. Hungary is due to politicians completely loose cannon in the portfolio of Erste and the situation in Romania, although stabilizing, but is still far from ideal. However, it is the daughter of Romanian BCR, which I feel has for the next two years are very significant and yet largely hidden growth potential. In the period before the financial crisis contributed to the overall BCR Group's profit fifth. It is now at a loss, according to the management of Erste would nevertheless in the next year should get into the black. And even though the recovery process BCR may be longer in reality, awards Erste this recovery is not yet in my opinion counted at all. Erste market value, despite a 50% increase in recent months is still only half the book value of equity 80% of net asset value (NAV). Return to NAV while in the coming years should easily rise above the cost of capital even with a very conservative projection for BCR. I do not see why today many reasons why Erste should trade at a discount to NAV.

Marek Hatlapatka

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