National Bank of Greece (NBG) reported 1Q 2007 earnings at 10:00am on Tuesday, May 30. The rapidly expanding bank reported net income of EUR381 versus EUR250 from the same period a year ago. Analysts were expecting EUR360 of income. NBG, which are actually the American Depository Receipts for the capital stock that trades on the Athens Stock Exchange, closed at a 52-week high of $12.10 on Tuesday, May 29, one day before the earnings announcement.
Yesterday, NBG was trading down 1.6% to $11.90 and traded as low as $11.75 on the stellar earnings report. NBG met analyst expectations for revenue, exceeded net income projections by nearly 6%, and cited strong growth in its core business and even stronger growth in its recently acquired divisions in Turkey and Eastern Europe.
So, with all of these positive, upbeat earnings report, why is the stock down nearly 2% rather than up strong?
The answer is that the market was unofficially expecting earnings to be stellar and exceed the official expectations. The rumor is that National Bank of Greece knocked the cover off the ball, which they did, but not enough. They brought the runs in, but only hit a 500 foot home run when the masses were hoping for a 600 foot bomb. Hence, a moderate sell off on average volume – the selling on the actual news of the earnings announcement has arrived. This almost predictable selling after the pre-earnings run up presents a buying opportunity on this news selling.
For long-term holders of National Bank of Greece, the future still looks bright. The company is trading at about 10.5 times projected 2008 earnings, which is slightly less than its peers. However, its peers are not showing the growth rates or the aggressive acquisition strategy like Greece’s largest bank. Current price to book value of over 3.2 is a little steep, but the company has merited the temporary valuation with their growth and focus on expansion.
I forecast that NBG still has 25%-30% upside over the next 12 months, which would price the NYSE traded ADRs at around $15.00-$15.60. I am raising my slash-and-burn, get me in at a 45-degree angle price from $11 to $12 – meaning that anything under $12 is a buy. In the short term, we may see some more selling pressure, especially next week after the ex-dividend date of June 1, 2007. NBG will be paying out EUR1 per share which is about $0.27 per ADR adjusted for the Euro to Dollar exchange rate and that each ADR represents one-fifth of a full share of NBG.
I am also partial to the possibility that a larger international bank may come in and scoop up this fast growing bank – but a mere 10% at best. I think that for the management of National Bank of Greece, if anything, getting acquired by a larger bank is not on their agenda. However, everyone has a price and within the next 12 months, if a buy out were to happen, we would see a price tag of $17-$19 for each ADR. The buy-out scenario is unlikely, but everyone has a price and it provides additional upside potential to this bank.
NBG 1-yr chart