"While most analysts have a favourable view on the shares of Hungary's OTP Bank, Wood & Co. has just downgraded the paper to ‘Sell' from ‘Buy' with a new target price of HUF 7,800, slashed from HUF 10,200 previously.Jiri Stanik, analyst at Wood & Co., recalled that OTP's share price was flat in 2007, primarily due to a weak macro performance on its domestic market and worries about its Russian acquisition.
“We don't see either of these concerns subsiding in 08, and would throw Bulgaria into the mix as a third albatross around the bank's neck," Stanik said.
The analyst believes that despite impressive improvement in the budget and current account deficits, Hungarian households will face a second year of negative growth in real wages.
“Weaker retail lending may therefore increase the pain for OTP's domestic business - pain it managed to escape last year," Stanik added.
In Russia, Investsberbank's results caused concerns in the middle of the year, and Stanik noted that the market has “remained suspicious" about OTP's performance in the Commonwealth of Independent States (CIS) since then.
“Despite the arrival of new management, investors are unlikely to buy until they see substantial and sustainable improvements here - improvements we believe OTP will struggle to deliver, at least for another six months."
In Bulgaria, Erste Bank has been under fire due to the deteriorating macroeconomic situation in Romania, the analyst ntoed. “OTP - with a smaller exposure to Bulgaria - potentially faces a similar problem in light of Bulgaria's 20% current account deficit and huge external funding requirements (82% of GDP). The market seems to be ignoring this, but we don't think they will for long," he added.
Despite being cheap and seeing support from potential corporate action, Stanik sees OTP facing an “even more challenging year". With risks mounting, he expects some 10% downside and suggests avoiding the stock."
Source: Portfolio Online Financial Journal
15.01.2008