Sector: Financial sector
We are upbeat on Vozrozhdenie Bank's financial results for 1H 2008. The results show that the bank has grown faster than the market and demonstrate an upturn in its productivity. However, the bank's active utilization of current accounts for financing its activities may be reduced in future, which could have a negative impact on the bank's margins. Meanwhile, the published report was generally above market expectations, which should positively affect the bank's stock valuations.
On August 28, Vozrozhdenie Bank announced its unaudited IFRS financial report for 1H 2008. In the reporting period, the bank's assets grew by 18.8% to RUB 132.3 billion. Total loans rose by 19.6% to RUB 93.4 billion. The bank's equity capital as of late 1Q 08 amounted to RUB 13.4 billion, a 13% increase on 31 December 2007.
Table 1. Vozrozhdenie Bank: Key Balance Sheet Indicators and Market Multiples, 1H 2008, RUB million
| | 1H 2008 | 2007 | Change |
|---|
| Assets as of the end of the reporting period | 132,319 | 111,404 | 18.8% | | Total loans as of the end of the reporting period | 93,449 | 78,149 | 19.6% | | Equity capital as of the end of the reporting period | 13,433 | 11,890 | 13.0% | | ROAE | 24.6% | 28.7% | - 4.1 p.p. | | ROAA | 2.6% | 2.1% | + 0.5 p.p. | | Cost/Income | 57.5% | 62.7% | - 5.1 p.p. |
Source: company data
Table 2. Vozrozhdenie Bank: Key Income Statement Indicators 1H 2007, RUB million
| | 1H 2008 | 1H 2007 | Change |
|---|
| Interest income | 6,201 | 4,350 | 42.6% | | Interest expenses | 2,556 | 1,896 | 34.8% | | Net interest income (NII) | 3,645 | 2,454 | 48.5% | | Commission income | 1,994 | 1,392 | 43.2% | | Commission expenses | 154 | 101 | 52.5% | | Net commission income | 1,840 | 1,291 | 42.5% | | Operating income | 5,395 | 3,459 | 56.0% | | Administrative and operating expenses | 3,351 | 2,572 | 30.3% | | Net profit | 1,559 | 674 | 131.3% |
Source: company data
We are upbeat on the company's financial report for 6M 2008. The 18.8% growth in the company's assets outran the corresponding average industry indicator of 14.6%. In turn, the bank's equity capital advanced by 13.0% and thus also outran the average industry indicator, which equals 11.7%.
Vozrozhdenie showed a considerable upturn in margins 1H 2008. For example, the bank's ROAA went up by 0.5% from 2.1% to 2.6%. The Cost/Income multiple fell by 5.1% to 57.5%. An outrunning growth in credit interest rates as compared to deposits was the key upside driver for the bank's productivity. This was caused by a growing demand for bank loans, since a lot of medium-size companies had difficulties entering capital markets due to the unfavorable environment. Moreover, the bank has pursued a long-term cost control policy.
Another success factor for Vozrozhdenie Bank was its stake on internal resources. The company's credits to deposits ratio amounts to 93%, while the share of the bank's own accounts in asset financing equaled nearly 31%. On one hand, this shows that the bank actively uses cheap resources, which has a positive impact on its margins. On the other hand, in future, the bank may experience problems attracting current accounts in a volume necessary for rapid growth. This could have a negative impact on the bank's margins.
In line with our estimates, the fair value of Vozrozhdenie Bank's common shares is USD 61.9 per share with a 67% upside potential, which corresponds to a Buy recommendation. The fair value of the bank's preferred shares is USD 30.2 per share. Konstantin Romanov
Other comments of the day
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Vozrozhdenie Bank
Capitalization: $244 903 472,14
Common shares:
Price: $11,56
Delta week: -0,4%
Delta month: -2,1%
Delta year: -82,4%
Preferred shares:
Price: $3,90
Delta week: 0,6%
Delta month: 5,7%
Delta year: -88,7%
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0.569
0.073
