Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/bank-pekao-sa" target="_blank" data-smartkarma-citation="entities:25195:1" rel="noopener">Bank Pekao SA (PEO PW) </a>strikes us as interesting in the unloved and unfashionable sphere of global bank stocks. While we have been cautious on Polish banks for some time now given structural issues related to “National Policy” and legacy assets as well as decreasing Profitability, recently we have identified the relative progression of specific names in our VFM model. VFM expresses an asset according to its value-quality characteristics (PH Score™), its technical picture, and an additional valuation filter.PEO struck us as particularly interesting a couple of weeks ago as a top decile asset globally in the banking universe. Its share price has outperformed global bank stocks since. We see this as a positive confirmatory signal and would buy on any weakness. The share price trend looks healthy.The shares are not dear. A FV of 8%, a PBV of 0.58x, and an Earnings Yield of 13.7% are not unattractive. They trade below common-sense thresholds of 10%, 1x, and 10%, respectively.  Our PH Score™ shows that the bank is making marked headway on the Efficiency front which is a key variable. This helps the bank offset some margin erosion though NIMs are still above the danger zone of other European and APAC lenders such as Taiwan and Japan. Liquidity trends are also highly benign with Deposits climbing by 23% YoY. The top-line shows moderate growth while “non-core Income” represented just 14% of PT Profit – an indication of benign earnings quality. The bottom-line was impacted lower by higher credit costs which may be partially reversed going forward. Comprehensive Income was well higher than Net Profit – a good sign.

Bank Pekao SA (PEO PW) strikes us as interesting in the unloved and unfashionable sphere of global bank stocks. While we have been cautious on Polish banks for some time now given structural issues related to “National Policy” and legacy assets as well as decreasing Profitability, recently we have identified the relative progression of specific names in our VFM model. VFM expresses an asset according to its value-quality characteristics (PH Score™), its technical picture, and an additional valuation filter.PEO struck us as particularly interesting a couple of weeks ago as a top decile asset globally in the banking universe. Its share price has outperformed global bank stocks since. We see this as a positive confirmatory signal and would buy on any weakness. The share price trend looks healthy.The shares are not dear. A FV of 8%, a PBV of 0.58x, and an Earnings Yield of 13.7% are not unattractive. They trade below common-sense thresholds of 10%, 1x, and 10%, respectively.  Our PH Score™ shows that the bank is making marked headway on the Efficiency front which is a key variable. This helps the bank offset some margin erosion though NIMs are still above the danger zone of other European and APAC lenders such as Taiwan and Japan. Liquidity trends are also highly benign with Deposits climbing by 23% YoY. The top-line shows moderate growth while “non-core Income” represented just 14% of PT Profit – an indication of benign earnings quality. The bottom-line was impacted lower by higher credit costs which may be partially reversed going forward. Comprehensive Income was well higher than Net Profit – a good sign.

Bank Pekao SA

Bank Pekao: Top Decile VFM Asset