EFG Hermes keeps ‘buy’ advice on top banks

Audi, BLOM, and Byblos exceed
expectations on profits and earnings

EFG-Hermes has reaffirmed its ratings on three top local banks, reiterating its ‘buy’ recommendation on both Bank Audi and BLOM Bank stocks, and its ‘neutral’ recommendation on Byblos Bank stock.

For Bank Audi, the Egypt-based financial group set $8.02 per share as fair value for the stock, which is trading today (August 14) at close to $5.3 per share, down from $6.24 per share in July, that implied an upside potential of 28.5 percent.

Bank Audi reported a strong increase in net profits during the second quarter of the year from the same period last year, which was driven mainly by a capital gain from the sale of Audi’s 81 percent majority stake in LIA Insurance to Morocco’s Saham Finances. The bank overshot EFG’s net profit forecast by 55 percent. Excluding the LIA divestiture, Audi still exceeded EFG’s forecast by four percent. The capital gain helped the bank improve capital adequacy to 12.2 percent in June, up from 10.8 percent in the first quarter of the year.

EFG Hermes said Bank Audi has been conservatively provisioning for its Syrian as well as its Egyptian subsidiaries. It estimates the bank’s return on average equity (ROAE) this year to be 19 percent.

EFG-Hermes set BLOM Bank stock’s fair value at $9.57 per share, the bank continues to trade at $7.4 per share, implying an upside potential of 29.3 percent. BLOM Bank’s net profits in the second quarter of this year overshot EFG’s estimates by 16 percent due to lower-than-expected operating costs and provisioning charges.

The bank’s revenues in the second quarter of the year went down from the first quarter. Net interest income went up over the same period. EFG-Hermes sees an upside potential for the stock.

EFG-Hermes set a fair value for Byblos Bank stock at $1.72 per share, the bank’s stock is currently trading at $1.52 per share, implying an upside potential of 11.7 percent. Byblos Bank’s earnings in the second quarter of the year managed to exceed EFG’s forecast by 24 percent driven by lower-than-expected provisioning as well as lower-than-expected operating expenses.

EFG-Hermes' ‘neutral’ rating on Byblos Bank is a reflection of its low estimated ROAE of 11 percent, which is below the bank’s estimated cost of equity of 16 percent.

Reported by Hani Bathiche