Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Powszechna Kasa Oszczednosci B / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/27058" target="_blank" data-smartkarma-citation="entities:27058:1">Pko Bank Polski Sa (PKO PW)</a> is an improving fundamental narrative of robust interest and non-interest income, wider margins, strong liquidity, ameliorating asset quality, robust capitalisation (raising DPR prospects perhaps), and positive jaws within a benign operating framework of moderate inflation and demand plus investment-driven GDP growth in excess of 4%.Management is advancing down the digitalisation path with its well-received IKO mobile application, e-government solutions, Fintech (acquired loyalty platform Zencard), and blockchain investment in verification and authentication of documentation. Banking internet usage and deposits/branch remain very low in Poland, indicating that there is ample scope for efficiency gains/savings in the future. PKO announced a headcount reduction of 850 employees for this year.With the acquisition of KBC’s mutual fund operations, PKO is market leader in this promising area, given that rates are not rising anytime soon, maturing time deposits can shift to funds, and government policy is boosting employee pension savings. (Employees will be automatically enrolled, and 2% of salaries will be put in tax-free retirement accounts. The employer will add a further 1.5%).Fee income from AUM is already on the rise, and economies of scale are evolving. PKO benefits more than most here.We do not see the narrative derailed by concerns regarding CHF mortgage costs (known unknowns) given recent political pronouncements regarding the setting-up of a fund and a 2% annual fee, and doubt that the “hit” to PKO will exceed 10% of Pre-Tax Profit, below higher estimates for mbank and Millenium. CHF portfolios are generally of high quality. “Noise” regarding this thorny issue has been in the market for an eternity, it seems.We highlight the compelling value-quality signals from the quintile 1 PH Score™.  Recent high scores out of Poland at Q118 - in general- have caught our eye. PKO, in fact, tops the leadership board not just in Poland but in Europe with a “full house”.<div class="content-highlight">The Score encompasses signals from Profitability, Operating Efficiency, Liquidity, Capital Adequacy, Asset Quality, and Provisioning. Scores lie between 0 and 10, with higher value-quality rankings representing more positive signs.</div>

Pko Bank Polski Sa (PKO PW) is an improving fundamental narrative of robust interest and non-interest income, wider margins, strong liquidity, ameliorating asset quality, robust capitalisation (raising DPR prospects perhaps), and positive jaws within a benign operating framework of moderate inflation and demand plus investment-driven GDP growth in excess of 4%.Management is advancing down the digitalisation path with its well-received IKO mobile application, e-government solutions, Fintech (acquired loyalty platform Zencard), and blockchain investment in verification and authentication of documentation. Banking internet usage and deposits/branch remain very low in Poland, indicating that there is ample scope for efficiency gains/savings in the future. PKO announced a headcount reduction of 850 employees for this year.With the acquisition of KBC’s mutual fund operations, PKO is market leader in this promising area, given that rates are not rising anytime soon, maturing time deposits can shift to funds, and government policy is boosting employee pension savings. (Employees will be automatically enrolled, and 2% of salaries will be put in tax-free retirement accounts. The employer will add a further 1.5%).Fee income from AUM is already on the rise, and economies of scale are evolving. PKO benefits more than most here.We do not see the narrative derailed by concerns regarding CHF mortgage costs (known unknowns) given recent political pronouncements regarding the setting-up of a fund and a 2% annual fee, and doubt that the “hit” to PKO will exceed 10% of Pre-Tax Profit, below higher estimates for mbank and Millenium. CHF portfolios are generally of high quality. “Noise” regarding this thorny issue has been in the market for an eternity, it seems.We highlight the compelling value-quality signals from the quintile 1 PH Score™.  Recent high scores out of Poland at Q118 - in general- have caught our eye. PKO, in fact, tops the leadership board not just in Poland but in Europe with a “full house”.The Score encompasses signals from Profitability, Operating Efficiency, Liquidity, Capital Adequacy, Asset Quality, and Provisioning. Scores lie between 0 and 10, with higher value-quality rankings representing more positive signs.

PKO Bank Polski: Qualitative Signals Are Strong