Merrill Lynch: BRE a "buy"
In a July 10 report, Merrill Lynch changed it recommendation from "neutral" to "buy," based on the fact that it expected BRE's to pull in earnings per share (EPS) 10% higher than previously anticipated. It also said that BRE shares should hit zl. 120 within the next 12 months.
It said that the bank, which closed Friday at zl. 110, is valued lower than it should be considering the bank's growth prospects and below-average risk.
BRE's recent acquisition of Polski Bank Rozwoju (PBR) will immediately help it expand its investment banking business, Merrill Lynch said. BRE's investment bank in 1997 underwrote $22 million worth of deals, while PBR underwrote $36 million. BRE's market share in investment banking had been 3-4%, and Merrill Lynch said that swallowing PBR should add another 1.5%.
BRE delved into the area last year by putting together its own staff and by buying Business Management & Finance, a corporate finance and consulting company that had a staff of 65 people. As for normal banking business, PBR's loan portfolio of zl. 1 billion ($290 million) will increase BRE's loan book by nearly one-third.
BRE is in the midst of merging with PBR and so far the bank has not disclosed estimates as to how much money the two entities will save by bringing their operations together. Merrill Lynch, however, estimates that within two years PBR could slash its operating costs of zl. 62 million ($19.38 million) last year by one-third to one-half.
Buying PBR helps BRE in other ways as well. By outbidding Germany's Bayerische Landesbank and Sweden's S-E-Banken for PBR, BRE effectively blocked another foreign competitor from immediately entering the market and gouging into its core business of foreign trade and commercial lending.
Those factors led Merrill Lynch to refigure its earnings projections for BRE. It now expects BRE to earn a net profit of zl. 314 million ($91 million) in 1998 and zl. 282 million ($81.74 million) in 1999. These figures are 22% and 30% above previous forecasts and consistent with BRE's view that PBR should add at least zl. 30 million to its net profit in 1999. Part of those added earnings, however, will be diluted when BRE issues zl. 314 million ($91 million) of new shares - a move by which the bank plans to help finance the PBR buyout. Including these shares, Merrill Lynch estimates that BRE's EPS for 1998 will be 10% higher.
BRE also got a thumbs up from rating agency Moody's Investor Service. Moody's raised BRE's long-term foreign currency deposit rating to Ba1 from Ba2, which is equal to Poland's rating of Ba1/Not Prime. Moody's reconfirmed the D rating it previously gave the bank for financial strength. It also raised its long-term foreign currency deposit ratings from Ba2 to Ba1 for Bank Slaski and Wielkopolski Bank Kredytowy (WBK).
It said that the bank, which closed Friday at zl. 110, is valued lower than it should be considering the bank's growth prospects and below-average risk.
BRE's recent acquisition of Polski Bank Rozwoju (PBR) will immediately help it expand its investment banking business, Merrill Lynch said. BRE's investment bank in 1997 underwrote $22 million worth of deals, while PBR underwrote $36 million. BRE's market share in investment banking had been 3-4%, and Merrill Lynch said that swallowing PBR should add another 1.5%.
BRE delved into the area last year by putting together its own staff and by buying Business Management & Finance, a corporate finance and consulting company that had a staff of 65 people. As for normal banking business, PBR's loan portfolio of zl. 1 billion ($290 million) will increase BRE's loan book by nearly one-third.
BRE is in the midst of merging with PBR and so far the bank has not disclosed estimates as to how much money the two entities will save by bringing their operations together. Merrill Lynch, however, estimates that within two years PBR could slash its operating costs of zl. 62 million ($19.38 million) last year by one-third to one-half.
Buying PBR helps BRE in other ways as well. By outbidding Germany's Bayerische Landesbank and Sweden's S-E-Banken for PBR, BRE effectively blocked another foreign competitor from immediately entering the market and gouging into its core business of foreign trade and commercial lending.
Those factors led Merrill Lynch to refigure its earnings projections for BRE. It now expects BRE to earn a net profit of zl. 314 million ($91 million) in 1998 and zl. 282 million ($81.74 million) in 1999. These figures are 22% and 30% above previous forecasts and consistent with BRE's view that PBR should add at least zl. 30 million to its net profit in 1999. Part of those added earnings, however, will be diluted when BRE issues zl. 314 million ($91 million) of new shares - a move by which the bank plans to help finance the PBR buyout. Including these shares, Merrill Lynch estimates that BRE's EPS for 1998 will be 10% higher.
BRE also got a thumbs up from rating agency Moody's Investor Service. Moody's raised BRE's long-term foreign currency deposit rating to Ba1 from Ba2, which is equal to Poland's rating of Ba1/Not Prime. Moody's reconfirmed the D rating it previously gave the bank for financial strength. It also raised its long-term foreign currency deposit ratings from Ba2 to Ba1 for Bank Slaski and Wielkopolski Bank Kredytowy (WBK).
