Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

We believe that well-capitalised, liquid, <a href="https://www.smartkarma.com/entities/27035" target="_blank" data-smartkarma-citation="entities:27035:1">mBank SA (MBK PW)</a> is in a sweet spot of higher margin revenue growth and gradual cost efficiencies within a benign macro framework of moderate inflation and demand plus investment-driven Poland GDP growth in excess of 4%. Management is aggressively driving an organic strategy within Poland’s fragmented Banking System to gain market share in middle market and non-mortgage consumer loans as well as the SME leasing sector. The non-mortgage consumer push also applies to the Czech Republic and Slovakia. We do not see the narrative derailed by concerns regarding CHF mortgage costs/liability (known unknowns) given recent political pronouncements and doubt that the “hit” to mBank will exceed 20% of Pre-Tax Profit. CHF portfolios are generally of high quality. “Noise” regarding this thorny issue has been in the market for an eternity, it seems. Dependent on the regulator, there is the potential to increase DPR to 50% in the medium-term from current level of 20%. What we do not know is how much longer <a href="https://www.smartkarma.com/entities/21596" target="_blank" data-smartkarma-citation="entities:21596:1">Commerzbank AG (CBK GR)</a> will remain as a controlling shareholder (known unknowns). We view the high-growth Polish franchise as attractive, particularly to a pan-European lender. We highlight the latest value-quality signals from the quintile 1 PH Score™.  Recent high scores out of Poland at Q118 - in general- have caught our eye.<div class="content-highlight">The PH Score™ is a fundamental momentum-quantamental model that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage. Scores lie between 0 and 10, with higher rankings representing more positive signs.</div>

We believe that well-capitalised, liquid, mBank SA (MBK PW) is in a sweet spot of higher margin revenue growth and gradual cost efficiencies within a benign macro framework of moderate inflation and demand plus investment-driven Poland GDP growth in excess of 4%. Management is aggressively driving an organic strategy within Poland’s fragmented Banking System to gain market share in middle market and non-mortgage consumer loans as well as the SME leasing sector. The non-mortgage consumer push also applies to the Czech Republic and Slovakia. We do not see the narrative derailed by concerns regarding CHF mortgage costs/liability (known unknowns) given recent political pronouncements and doubt that the “hit” to mBank will exceed 20% of Pre-Tax Profit. CHF portfolios are generally of high quality. “Noise” regarding this thorny issue has been in the market for an eternity, it seems. Dependent on the regulator, there is the potential to increase DPR to 50% in the medium-term from current level of 20%. What we do not know is how much longer Commerzbank AG (CBK GR) will remain as a controlling shareholder (known unknowns). We view the high-growth Polish franchise as attractive, particularly to a pan-European lender. We highlight the latest value-quality signals from the quintile 1 PH Score™.  Recent high scores out of Poland at Q118 - in general- have caught our eye.The PH Score™ is a fundamental momentum-quantamental model that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage. Scores lie between 0 and 10, with higher rankings representing more positive signs.

mBank SA

MBank: Any Takers for the CHF Portfolio?