Banca Popolare di Bergamo-CV

Transcription

1 Banca Popolare di Bergamo-CV Price: 20.6 BANKS From Add to HOLD Y/E December E 2001E 2002E 2003E Net operating income m Net profit m EPS m EPS adjusted m BVPS m Dividend (Ord) m P/E (Ord) x P/BV (Ord) x Yield (Ord) % ROE % Market capitalisation: 2.7bn Comit Index: 1,740 Rel performance: Number of shares: 12.9bn NAV per share: m +3.7% 52-week range: Reuters: PGPI.MI 3m +16.5% Major shareholder: None Free float: 12m +23.8% We are downgrading Banca Popolare di Bergamo-Credito Varesino from Add to HOLD, mainly due to the weak earnings profile. Our target price is 22 per share. After the failure to merge with Banca Popolare di Verona, Banca Popolare di Bergamo has focused on establishing the structure for organic growth. It has increased its participation in Centrobanca (which should become the group merchant bank), bought out the Banca Popolare di Ancona minorities, set up two new product companies in capital markets and asset management (Finanzattiva Sim and Finanzattiva SGR) and started up a financial consultants network (BPB Sim). We believe all these projects will only have a positive effect on group profitability in around two years time and could actually depress profit growth. Centrobanca should improve profitability and asset quality, while the Banca Popolare di Ancona integration should be completed by 2002; the other initiatives are in a start-up phase. We forecast that BPB will report a 203m net profit in 2000, driven by a 20% increase in interest income and around 13% in non-interest income. Our estimates for are conservative, for the reasons above, giving a EPS CAGR of around 12%. We change our recommendation from Add to HOLD, in particular on the basis of the weaker earnings momentum, reflected by a E PEG higher than the average of other popolari (1.1x, vs. 0.9x for peers). However, we believe that in the short term the stock could benefit from the following factors: At present, the market tends to prefer more conservative and medium-sized rather than large banks, because of their lower exposure to market volatility Currently, Banca Popolare di Bergamo offers a dividend yield of around 4.5% for 2000, which should increase to 5% by 2003 We value BPB on a three-stage Gordon model: fair value is 22 per share, assuming a medium term growth rate of 4.5-5%, a long-term growth rate of 2% and a 20% discount factor for the popolare status. Enrica Lucchi elucchi@bancaimi.it , Milan 8 March 2001

2 VALUATION 1 Three-stage Gordon Model We have used a three-stage Gordon Model based on: Our detailed estimates up to 2003 A 4.5-5% growth rate between 2003 and 2011, and 2% after 2011 A payout ratio of 70% for A discount rate of 8.7% (5.2% risk-free rate, 3.5% risk premium) A beta of 0.9, which is above the stock s historical beta (around 0.7), because of the intrinsic risk and the volatility of some business areas (Centrobanca and asset management) A 20% discount to allow for the popolare status On these assumptions, we obtain a target price of 22 per share. Table 1: Sensitivity of valuation to beta and growth rate in Beta 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% Source: Banca IMI model In terms of P/E, BPB trades at a discount of 11% in 2000E and 7% in 2001E, which decreases to around 3% in 2002E E EPS growth will be held back by the conversion of a bond issue (Lit 331.4bn outstanding, equivalent to around 12.2m shares) and by the exercise of a warrant (Lit 107bn outstanding, equivalent to around 8.9m shares). Table 2: Valuation comparison Price EPS CAGR P/E PEG 5 Mar E 2001E 2002E 2003E 00-03E 2000E 2001E 2002E 2003E Regional banks BPM Neg N.A. BPB % BPV % Rolo % Banca Lombarda % CR Firenze N.A. N.A N.A. N.A. BPCI % BP Novara % N.A Average (excl Novara) 20.3% BPB discount (%) Source: Banca IMI estimates BPB looks cheap on the 2000E value map, but less so in 2002E Analysing the value map based on our estimates for 2000 (see page 3), Banca Popolare di Bergamo looks undervalued, but it appears rather less cheap in 2002E. This demonstrates BPB s weaker earnings momentum, even though, in our view, it is characterised by a low level of risk. Share price data as at 6 March 2001 All references in this document to Banca IMI refer to Banca d Intermediazione Mobiliare IMI SpA 2

3 Figure 1: Value map, 2000E y = x R2 = ROLO 2.50 Banca Lombarda 2.00 P/BV BPNovara BPC&I BPVerona CRFirenze CARIGE BPBergamo 0.50 BPMilano ROE Source: Banca IMI estimates and elaboration Figure 2: Value map, 2002E 3.00 y = x R2 = ROLO 2.50 Banca Lombarda 2.00 P/BV BPNovara BPC&I BPBergamo BPVerona CARIGE CRFirenze 0.50 BPMilano ROE Source: Banca IMI estimates and elaboration Figure 3: Share price performance 27 BCA.PPO.BERGAMO FROM 6/ 3/00 TO 6/ 3/01 DAILY STRATEGY UPDATE 18 MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR PRICE HIGH /2/01, LOW /6/00, LAST PRICE REL. TO MILAN COMIT GENERAL Source: DATASTREAM 3

4 Figure 4: Banca Popolare di Bergamo-Credito Varesino group structure BANCA POPOLARE DI BERGAMO-CREDITO VARESINO BANKS LEASING FINANCE BANCASSURANCE & BROKING SERVICES REAL ESTATE Banque de Depots et de Gestion SA BPB Leasing SpA BPB Partecipazioni SpA BPB Partecipazioni Assicurative 90% Bergamo Esattorie SpA () BPB Immobiliare Srl () Banca Brignone SpA Banca Pop. Di Ancona SpA 94.61% Esaleasing SpA 97.80% BPB SIM Arca Sgr SpA 20.08% Arca Merchant SpA 16.90% BPB Assicuraz. SpA (Danni) () BPB Assicuraz. SpA (vitai) () BPB Assirena Srl () CIL ME SpA (21.32%) Mercato Impresa SpA (65%) Manzonisette Srl () Banca Pop. Di Todi SpA 85.78% Cassa di Risp. Di Fano SpA 66.39% Finanzattiva SIM () Finanzattiva Gest. Sgr SpA S.F. Studio Finanziario SpA BPB Mediazioni Assicurative Srl (88%) Ancona Tributi SpA (62.73%) BPB Investimenti SpA 57.78& Assifit SpA BPB Internat Finance PLC () Source: Banca Popolare di Bergamo. Note: percentages show overall group participation. Taking over BPAncona minorities should accelerate the integration process (1) Banks BPB is still working on integration (IT being the priority) between the different banks of the group, due to be concluded by end In November 2000, BPB launched a public offer for 47.2% of Banca Popolare di Ancona. This allowed it to add 41.8% to the previous 52.8% participation, giving a 94.61% stake at end The P/BV was 1.52x, and there was a cash outflow of around 530m and goodwill of 233m, to be amortised over ten years. BPB has financed the deal through free capital and subordinated debt. Banca Popolare di Ancona reported 2000 net profit of 47.7m (+15%). The short-term impact is slightly dilutive (BPAncona s RoE is 7.6% in 2000E, vs. BPB s before the acquisition estimated at around 12%) but synergies should have a positive effect in the medium term, most of all regarding the operating system, which should be completely integrated by end (2) Finance Centrobanca is planned to become the corporate finance and merchant banking centre for the group, but the first priority is to improve its profitability and poor asset quality. The other projects in capital markets and asset management are in a start-up phase. 4

5 The acquisition of Centrobanca depressed asset quality Finanzattiva SIM Spa and Finanzattiva Gestioni SGR SpA A start-up network of financial promoters BPB has recently increased its stake in Centrobanca to 66.26%, previously controlled by a group of popolari and characterised by a low asset quality. BPB bought the stake (24.16%) from Banca Popolare di Novara for 109m, a price that implied a total value of Centrobanca of around 452m. BPB intends to restructure Centrobanca in order to strengthen the corporate banking business. In the not too distant future, the bank should become BPB s core centre of corporate finance and merchant banking activity. Centrobanca closed 1999 with a loss of 102m and we forecast a loss for 2000 of around 24m, partly due to a write-down of 231m (amortised over five years) of junior notes coming from the securitisation of non-performing loans of Italfondiario. The poor asset quality of Centrobanca has depressed that of the BPB group: the net non-performing loans ratio (including interest arrears) increased from 1.55% in June 2000 to 2.88% at September In our opinion, BPB could soon need to take other measures (for example, securitisation) in order to improve asset quality. At the end of August 2000, Banca Popolare di Bergamo established three new product companies, operating in capital markets and asset management: Finanzattiva SIM Spa, focused on equity and bond trading and derivatives, with capital of Lit 35bn. Finanzattiva Gestioni SGR, focused both on production and portfolio management, with a capital of Lit 25bn. Before this, all activities in mutual funds were carried out by Arca Gestioni (20% owned), which will continue to cover mainly retail clients, with standardised products. On the other hand, Finanzattiva Gestioni should offer more sophisticated and structured products to affluent individuals and small corporate customers. Furthermore, the new SGR should cover the private banking portfolio management activity. Finanzattiva Servizi SRL, supporting the other two companies in technology and back-office activities (with capital of Lit 15bn). (3) Alternative distribution channels BPB has, at present, only around 60 financial promoters, which is projected to increase to around 1,000 by the end of In our opinion, the target of Lit 10,000bn of AuM at the end of 2004 is too high; we estimate that BPB could reach around Lit 5,000bn of AuM by The commercial agreements reached (with Toscano, Capital Money, the Italian Federation of Tobacconists and Telemarket) could be a good move for BPB s product development, although not all of these are exclusive. BPB is developing a new financial promoters network (BPB Sim), which should be integrated with the branch network. At present, it has only around 60 financial advisors, but in our opinion the bank s targets are too ambitious: 1,000 external financial promoters and 100 new financial shops, which (according to BPB s estimate) should deliver an increase in AuM to Lit 10,000bn by In our opinion, a target of around Lit 4,500-5,000bn of AuM through financial promoters (with a total AuM of Lit 5,000bn) would be reasonable. Our target is below the current average of peers in terms of AuM per promoter (Lit 7.39bn), but in line with the average net sales per year (Lit 1.13bn, which in four 5

6 years would equal around Lit 4.5-5bn). Our projections take account of the fact that the structure is in a start-up phase and that the asset management area is currently extremely weak. Table 3: Alternative distribution channels in Italy (December 2000) Financial advisors AuM (Lit bn) Net sales AUM/fin Net sales/fin Number % Total % (Lit bn) % adv (Lit bn) adv (Lit bn) North-West 7, , , North-East 5, , , Centre 6, , , South 6, , , Total Italy 26, , , Source: Assogestioni Commercial agreement, but non-exclusive Lineattiva Good potential for e-commerce project Stand-alone virtual banking BPB has also signed commercial agreements (not all exclusive) with: Capital Money Group, Toscano, Tempo Casa, Biessea for the distribution of mortgages and financial and insurance products The Italian Federation of Tobacconists, for the distribution of insurance and pension products Telemarket (in which BPB intends to acquire an 8% stake during 2001), a company specialising in sales via TV/the internet (4) Internet strategy At present, on the basis of the disappointing performance by the main on-line brokers, we do not believe that internet initiatives will help earnings growth. On the other hand, we see the potential for profitability in the e-commerce project, considering the strong franchise with local enterprises. In February 2000, the bank launched on-line trading activities (in co-operation with SIA). At parent company level, from the date of launch around 6,500 users have subscribed to the service and over 50% of the entire value of stock market transactions has been handled through on-line trading. The bank offers internet home banking and phone banking services through, respectively, Lineattiva Banking and Lineattiva Calling. BPB has also signed an agreement with TIM in order to develop mobile phone banking activities. Banca Popolare di Bergamo, in a JV with e.biscom (35% B2Biscom, 65% BPB), has set up Mercato impresa SpA, under the Coralis brand, a company offering B2B services to small and medium-sized companies. The potential for growth of the business is, in our opinion, very high, especially considering the strong relationships with local companies. The bank has started work (together with Sapient) on a project for the creation of a stand-alone virtual web bank, targeting the affluent individual and small business sectors, which could be listed on the Stock Exchange at some stage, we believe. 6

7 FINANCIAL FORECASTS Table 4: Profit & Loss m E 2001E 2002E 2003E Interest Income % chg Financial Income Fee Income Other Net Income Non-Interest Income Total Income 1,078 1,112 1,299 1,404 1,511 1,624 % chg Personnel Expenses Other Operating Expenses Depreciation & Amortisation Net Operating Income % chg Loan Write-Downs & Provisions Net Other Income Net Extraordinary Income Pre-Tax Profit Taxes Tax rate % Minorities Group Net Profit % chg Adjusted Net Profit Source:BPB, Banca IMI estimates. Note: 2000 includes Centrobanca for three months, fully consolidated from Table 5: P&L (consolidated) by Quarter Lit bn 1Q00 2Q00 3Q00 4Q00E Interest Income Dividends Financial Income Fee Income Other Net Income Non-Interest Income Total Income Personnel Expenses Other Operating Expenses Total Operating Costs Gross Operating Income Depreciation & Amortisation Net Operating Income Loan Write-Downs & Provisions Net Other Income Gross Profit Net Extraordinary Income Pre Tax Profit Taxes Tax rate % Change in reserves Minorities Group Net Profit Interest Income/Total Income (%) Fee Income/Total Income (%) Non Interest Income/Total Income (%) Costs/Income (%) Personnel costs/total Income (%) Source: BPB, Banca IMI estimates. 7

8 Table 6: Balance sheet (consolidated) m E 2001E 2002E 2003E Cash and Securities 4,347 4,520 4,865 4,813 4,762 4,710 Net Customer Loans 14,507 17,422 26,994 28,964 30,858 32,640 % chg Net Interbank Loans Net Interest-Bearing Assets 20,209 21,942 31,859 33,777 35,620 37,350 % chg Participations Other Fixed Assets Total Fixed Assets % chg Other Assets Net Assets 21,183 22,925 33,168 35,310 37,128 38,855 % chg Customer Deposits 18,397 19,935 28,029 29,756 31,606 33,577 % chg Net Interbank Deposits ,055 1,964 1,685 1,152 Other liabilities Subordinated loans ,271 1,271 1,271 Net equity 1,656 1,893 2,213 2,319 2,567 2,855 of which Minorities Net liabilities 21,183 22,925 33,168 35,310 37,128 38,855 Source: BPB, Banca IMI estimates. Note: 2000 includes Centrobanca fully consolidated. Banca d Intermediazione Mobiliare IMI SpA co-ordinates the investment banking activities of the Gruppo Bancario SANPAOLO IMI. Worldwide, these activities are conducted through the following companies: BANCA Corso Matteotti 6 IMI BANK (LUX) SA 8 avenue de la Liberté D INTERMEDIAZIONE Milan 1930 Luxembourg MOBILIARE IMI SPA Italy Luxembourg Tel: (39 02) Tel: (352) Fax: (39 02) Fax: (352) Dealing: (39 02) Dealing: (352) BANCA Wren House BANCA IMI SECURITIES CORP 245 Park Avenue D INTERMEDIAZIONE 15 Carter Lane 35 th Floor MOBILIARE IMI SPA London EC4V 5EY New York NY USA LONDON BRANCH Tel: (44 20) Tel: (1 212) Fax: (44 20) Fax: (1 212) Dealing: (44 20) Dealing: (1 212) INTERNET: Distributed by Banca d Intermediazione Mobiliare IMI S.p.A., Milan, an authorised bank, in Italy. Distributed by and approved by: Banca d Intermediazione Mobiliare IMI S.p.A. London Branch, a member of the London Stock Exchange and regulated by the Securities and Futures Authority for the conduct of investment business in the UK and Banca IMI Securities Corp., a member of the NYSE and NASD in the USA. The information and opinions contained in this document are based on sources believed to be reliable and in good faith but no representation or warranty, express or implied, is made by any member of the Gruppo Bancario SANPAOLO IMI as to their accuracy, completeness or correctness. All opinions expressed herein are subject to change without notice. This document is for information purposes only, descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as, an offer to buy or sell any securities. Neither member companies of the Gruppo Bancario SANPAOLO IMI nor any of their directors, representatives or employees accepts liability for any direct or consequential loss arising from use of this document. Member companies of the Gruppo Bancario SANPAOLO IMI, their directors and/or representatives and/or employees and/or families may have a long or short position in any of the securities mentioned in this document at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale, of any of the securities from time to time in the open market or otherwise, and may also have performed, are performing or seeking to perform investment services for companies mentioned herein and may also have acted upon research recommendations or other information before publication, in each case either as principals or as agents. Residents in Italy: This report is based upon information and data from sources that we believe reliable, but whose accuracy is not guaranteed. Its main goal is to offer accurate and up-to-date information: it is not intended, therefore, as an offer or a solicitation to buy or sell securities. Banca d Intermediazione Mobiliare IMI Spa and others associated with it may have positions in, and may effect transactions in securities of companies mentioned herein may also perform or seek to perform investment banking services for those companies. Residents in the UK: This document is not for distribution in the United Kingdom to persons who would be defined as private customers under the rules of the SFA. US Persons: US Customers wishing to effect a transaction should do so only by contacting a representative at Banca IMI Securities Corp. in the U.S. Banca d'intermediazione Mobiliare IMI SpA and its non-u.s. affiliates may, to the extent permitted under applicable law, have acted upon or used this research, to the extent it relates to non-u.s. issuers, prior to or immediately following its publication. Furthermore, this document may not be reproduced, distributed or published for any purpose. By accepting this document you agree to be bound by all of the foregoing provisions. 8