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© Banca Transilvania SA |
TLV 3Q 2007 results (positive)
- impressive top and bottom line growth, enhanced profitability while loan growth gathers pace
- we maintain our Hold recommendation with a 12-month TP of RON 0.85 per share
Banca Transilvania (TLV) has released its 3Q 07 unconsolidated figures under the Romanian Accounting Standards (RAS). We remind readers that our valuation is based on consolidated IFRS projections.
TLV positively surprised, as for the second quarter in a row, revenues growth outpaced the non-interest expenses triggering a profitability improvement to levels not seen since 2Q 05. The slow down of the network expansion, which is already the country’s third largest and more units breaking-even are responsible for the strong rise of the net profit. The bank operates now 410 outlets, 69 more compared to end-2006 and 630 POSs against 528 as of beginning of the year.
TLV does not publish the financial results of its subsidiaries, some of them loss-making, like the insurance arm BT Asigurari for whose divestment TLV started negotiations with the French-based Groupama. We expect the transaction to be closed by the end of this year and have a positive impact on the FY 2007 consolidated results. According to our estimates, the transaction value could reach as much as EUR 120 mn, that would result in a FY 2007 consolidated net profit of RON 380 mn, more than 3.3x up yoy.
Balance sheet
TLV’s balance sheet expanded 68% yoy and 41% YTD, driven by an above the sector growth of loans. Thus, the loan book growth accelerated in 3Q 07, surging 72% yoy and 55% YTD. It seems that TLV’s new lending procedures for retail that allow a higher level of indebtedness, had a favorable impact on the growth of the loan portfolio (e.g. 3Q 07 19% qoq against 16% qoq in 2Q 07). On the liabilities side, the bank confirmed its traditional reliance on deposits financing, with its deposits base posting a 74% yoy rise and 42% YTD. Despite the liquidity squeeze that characterized the international money markets, TLV succeeded in raising additional borrowings. It was probably helped by Fitch rating agency which upgraded TLV’s outlook to positive.
P&L
Third quarter net interest income (NII) rose sharply, 62% yoy and 15% qoq, strengthening the net interest margin (NIM) for the quarter. We attribute this to the decreasing weight of lower yield assets (e.g. bank placements) and higher margins charged for the new loans. Non-interest income rose 63% yoy and 5% qoq, including a 64% yoy rise of net fees&commissions and a 33% yoy increase of the net trading gains.
This quarter brought a needed deceleration of the non-interest expenses growth, up 38% yoy but almost flat on 2Q 07 (RON 133 mn). The main drivers, personnel expenses and administrative expenses followed the same pattern, recording some of the lowest annual growth rates in the last five quarters. Undoubtedly, the slow down of the network expansion is the main explanation for this evolution.
The faster growth of the revenues prompted an improvement of the core profitability, with costs as percentage of income declining to 59% from 64% in 2Q 07 and 69% in 3Q 06.
The risk costs soared 130% yoy and 90% qoq due to both an increase of the loan book but also as a consequence of TLV’s riskier portfolio.
All in all, 3Q 07 net profit climbed to RON 54 mn, 110% higher yoy and 12% qoq. Net profit for the first nine months amounted to RON 134 mn, up 58% yoy. Our estimate for the FY 2007 growth of consolidated net profit is 17% yoy.
TLV Q3 2007
| in RON mn | 3Q 07 | 3Q 06 | yoy | 2Q 07 | qoq |
| Net interest income | 103 | 64 | 62% | 76 | 89 |
| Risk provisions | 32 | 14 | 130% | 15 | 17 |
| Non-interest income | 124 | 76 | 63% | 92 | 118 |
| Net commission income | 90 | 55 | 64% | 64 | 78 |
| Net trading result | 27 | 20 | 33% | 19 | 36 |
| Non-interest expenses | 133 | 96 | 38% | 116 | 134 |
| Profit before taxes | 62 | 30 | 110% | 36 | 57 |
| Net profit | 54 | 26 | 110% | 31 | 48 |
Source: TLV, RCI estimates
We will review our FY 2007-09 estimates in the light of these results. In the mean time we maintain our Hold recommendation for TLV share with a 12-month TP of RON 0.85.
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Copyright: 2007 Raiffeisen Capital & Investment SA. All rights reserved. For further Information please contact Raiffeisen Capital & Investment SA, 15, Charles de Gaulle Square, 4th Floor, Bucharest 011857, Romania, Authorized by CNVM decision 3083/09.09.2003
Tel. +40 21 306 12 33, fax: +40 21 230 06 84, e-mail: office.rci@rzb.ro, web site: http://www.rciro.ro
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