Investment thesis: I recommend you to take a closer look at the shares of the largest Russian bank - Sberbank (OTC: OTCPK:SBRCY), for three reasons: high growth in 2017 and in the third quarter, future dividends with a payout ratio of up to 50% and a monopoly position for the coming years.
1x BUY - high growth
In mid-November, Sberbank reported for the third quarter of 2017. The report turned out to be insanely good and surpassed all expectations and forecasts of analysts.
Net profit for 9 months reached RUB576 billion, which is 44% more than for 9 months of 2016.
Operating Income for 9 months increased by 11% compared to the same period in 2016. And operating expenses fell by 1.4%, which became possible due to the introduction of more efficient methods of work by the company's management and staff reduction.
The income of Sberbank is divided into three types and all of them showed strong growth in the 3rd quarter:
1. Net interest income in the 3rd quarter of 2017 compared to the same period last year showed +9.4% and amounted to 375 billion.
2. Net commission income in the 3rd quarter of 2017 by the same period last year showed + 13.9% and amounted to 100 billion.
3. Other income in the third quarter of 2017 compared to the same period last year showed + 513% and amounted to 22 billion.
A Return on Equity reached a record of 25.5%, which is higher than almost any bank has in the world.
Loan portfolio of the company increased by 4.5% compared to the beginning of the year and mainly this increase is due to a strong increase in consumer loans.
The company showed growth of all indicators both for the 3 quarter and for 9 months of 2017. But in my opinion, this growth will continue in the next few years, because Sberbank from year to year introduces new and very effective solutions for its activities, so only in the last two months there have appeared many interesting news on future projects of Sberbank: this is the decision to provide loans for people using artificial intelligence and a new technology for contactless payments and the acquisition of a technology developer for face recognition and much more.
2x BUY - future dividends
Last week, there was news that next year, Sberbank could increase dividends to 35-40% of profits in 2017. At present, Sberbank paid 25% of the bank's profits. Back in late May, Sberbank decided to increase dividend payments three times - up to 25% of profits. By the end of 2016, dividends amounted to 135.5 billion rubles. The Supervisory Board of Sberbank at the meeting on December 12 will consider and approve a new dividend policy.
And if in 2018, Sberbank will pay 35% of the profits, it will be yield of about 4% of current prices.
3x BUY - monopoly
2017 for Russia was marked by a banking crisis. And probably the only bank that only benefited from this crisis was Sberbank. And its expansion should continue in 2018 and 2019, because according to the statement of Fitch for the stability of the banking system of Russia 50 banks are quite enough, and now their number is more than 200 and many of them have difficulties with both capital adequacy and attracting new customers in the period of general distrust of small private banks. Most importantly, the banking industry requires ever greater changes and the introduction of new technologies and for most small banks such changes are financially unavailable.
In the race for customers will win those banks that have access to low-cost funding - they can offer more favorable terms. "It is obvious that the major players, first of all state-owned banks, have an advantage in this situation - says S&P analyst Dmitry Nazarov.
Despite strong growth of shares in recent months and monopoly, Sberbank is strongly underestimated to its global and Russian competitors.
On the left side you can find Russian banks traded on the Moscow stock exchange. Data is taken from Tradingview
As for the comparison with all Russian banks on the Moscow stock exchange, the capitalization and market share of all represented banks are significantly lower than that of Sberbank. ROE of all banks, not including Sberbank is from 3% to 11%. Considering the 8.5% refinancing rate ROE looks extremely low or even negative. Speaking about P/E, excluding Otkritie Bank (OFCB), Sberbank is underestimated to this group by about 40%, while it is clear that the company is relatively overvalued by P/S and P/BV. More than that, Sberbank has the highest ROE, ROA and dividend yield in this group.
|Lloyds B. Group||35.7||1.34||1.031||3.76%||2.2%||4.51%|
In comparison with the largest European banks, Sberbank also looks more attractive. In the group of the largest by capitalization European banks, Sberbank has the lowest P/E and the highest ROE, even if it is adjusted for the refinancing rate. Therefore, in addition to drivers in the form of dividends and future growth, the company is also underestimated to its competitors. Therefore, I believe that these three arguments should convince any investor to take a closer look at the shares of Sberbank.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.