Goldman Sachs slashes OTP target price

Analysis

OTP reported its second-quarter IFRS results on 19 August, showing net income of HUF 37.3 bn, 7% above Goldman Sachs’s estimates and company-compiled consensus, reports Portfolio.hu.

Analysts at Goldman Sachs said in a research note dated 23 August that the key positive factor in the earnings report was that other income was driven by revaluation of FX LLP hedges and consolidation effects. As the key negatives they mentioned that i) provision charge was 6% above consensus, 22% up q/q driven by CHF appreciation; and, ii) loan portfolio grew only 1% q/q, 2 pp below their expectations. 

Following disappointment on both Q2 results and recent Hungarian GDP numbers Goldman Sachs lowered its 2011-13 loan growth assumption to 0%/4%/7% on a consolidated level from 1%/9%/11%, says Portfolio.hu. It has also increased its cost of risk assumptions to 309/270/219 bp vs. 269/166/157 bp expected earlier. 

"We believe it’s too early to turn positive, despite underperformance, for two reasons: visibility on OTP’s ROTE (return on total assets) recovery is now extremely low; and market consensus has to move down further." 

"In our view, OTP’s investment case is based on recovery in ROTE on lower risk costs, which is now unlikely." In recent days, consensus has cut estimates for OTP on the back of higher risk costs and Goldman Sachs has done the same, decreasing its EPS by 16%-28%. The analysts noted, however, that "this trend is likely to continue as we believe part of consensus is still too optimistic." 

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