Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Formed in 1992, <a href="https://www.smartkarma.com/entities/27857" target="_blank" data-smartkarma-citation="entities:27857:1">Siauliu Bankas AB (SAB1L LH)</a> has evolved into the sixth largest Lithuanian bank in terms of Assets and an important provider of banking services to Lithuanian SMEs. SAB1L is based in Siauliai in the north of the country, and in recent years has developed a nationwide franchise. It now has an upgraded network of 43 branches in all regions of Lithuania, and is investing in its digital footprint. SAB1L holds a 9.3% share of the corporate credit market, a 8.7% share of system deposits, and 8.7% of fast-evolving consumer loans. Main peers are SEB, Luminar, and Swedbank.The bank is generating vibrant non-interest income from settlements and cash office transactions as well as its niche home and multi-apartment improvement revenue stream. The banks commands a 60% share of this energy-efficient focused market.Constant uncertainty regarding an EBRD loan and conversion terms/dilution  has weighed on shares for some time. This has since cleared. EBRD is now the main shareholder with a 26% stake after a 2013 subordinated loan was recently converted into equity. The decision to strengthen the bank's capital not only shows that the largest shareholder has a positive view of the bank's strategy and outlook, but creates conditions for the bank to continue expanding its activities.The Lithuanian economy represents a relatively solid narrative. Fiscal discipline combines with growth spurred by consumption, credit, firm investment, exports, while inflation and unemployment remain under control. Industrial output soared in October, propped up by a rebound in manufacturing production. In addition, exports climbed in October while upbeat retail sales pointed to strong household consumption. GDP can grow by 2.5-3.0% over the next year barring any unforeseen global ruptures.<div class="content-highlight">SAB1L stands out trading at a 8% discount to Book Value and lies on a low Mkt Cap./Deposits rating of 12%, well below the global and EM median. SAB1L commands a huge dividend-adjusted PEG of &gt;4x with recurring growth more than 4x  its lowly PER. Earnings Yield is 23%. A quintile 1 PH Score™ of 8.9 captures the valuation dynamic while metric change is impressive. Combining franchise valuation and PH Score™, SAL1L stands in the top decile of opportunity globally. With a ROE in excess of 20%, an Efficiency Ratio below 40%, and double-digit B/S growth, shares should command a much higher multiple. With dilution issues regarding an ERBD behind it, shares can move higher.</div>

Formed in 1992, Siauliu Bankas AB (SAB1L LH) has evolved into the sixth largest Lithuanian bank in terms of Assets and an important provider of banking services to Lithuanian SMEs. SAB1L is based in Siauliai in the north of the country, and in recent years has developed a nationwide franchise. It now has an upgraded network of 43 branches in all regions of Lithuania, and is investing in its digital footprint. SAB1L holds a 9.3% share of the corporate credit market, a 8.7% share of system deposits, and 8.7% of fast-evolving consumer loans. Main peers are SEB, Luminar, and Swedbank.The bank is generating vibrant non-interest income from settlements and cash office transactions as well as its niche home and multi-apartment improvement revenue stream. The banks commands a 60% share of this energy-efficient focused market.Constant uncertainty regarding an EBRD loan and conversion terms/dilution  has weighed on shares for some time. This has since cleared. EBRD is now the main shareholder with a 26% stake after a 2013 subordinated loan was recently converted into equity. The decision to strengthen the bank's capital not only shows that the largest shareholder has a positive view of the bank's strategy and outlook, but creates conditions for the bank to continue expanding its activities.The Lithuanian economy represents a relatively solid narrative. Fiscal discipline combines with growth spurred by consumption, credit, firm investment, exports, while inflation and unemployment remain under control. Industrial output soared in October, propped up by a rebound in manufacturing production. In addition, exports climbed in October while upbeat retail sales pointed to strong household consumption. GDP can grow by 2.5-3.0% over the next year barring any unforeseen global ruptures.SAB1L stands out trading at a 8% discount to Book Value and lies on a low Mkt Cap./Deposits rating of 12%, well below the global and EM median. SAB1L commands a huge dividend-adjusted PEG of &gt;4x with recurring growth more than 4x  its lowly PER. Earnings Yield is 23%. A quintile 1 PH Score™ of 8.9 captures the valuation dynamic while metric change is impressive. Combining franchise valuation and PH Score™, SAL1L stands in the top decile of opportunity globally. With a ROE in excess of 20%, an Efficiency Ratio below 40%, and double-digit B/S growth, shares should command a much higher multiple. With dilution issues regarding an ERBD behind it, shares can move higher.

Siauliu Bankas AB

Siauliu Bankas: A Baltic Belter