Riyadh – Mubasher: NBK Capital, the investment arm of Kuwait’s NBK, lowered its fair value estimate for Saudi Hollandi Bank (SHB) to SAR 34.4 per share, upgrading its recommendation to ‘Buy’ from ‘Hold’.
“SHB’s stock price has plummeted by 48% since early June 2015, significantly underperforming the Saudi banking index which was down 31% in the same period. Therefore, despite cutting our fair value by 25% (to SAR 34.40 from SAR 46.10), the upside potential remains at a sizable 38%; therefore, we upgrade our recommendation on the stock from Hold to Buy,” said NBK Capital.
SHB is trading now at a P/B of 1.2x, which is an 11% premium to its Saudi peers under our coverage, down from an average premium of 33% in the past two years. This limited premium (11%) is in a context of a significant outperformance for SHB in terms of RoAE (17.9% in 2015F versus 13.6% for peers). The decrease in fair value is driven by lower net profit in the forecast horizon (mainly on the back of higher loan provisioning and lower non-interest income), an increase in the cost of equity, and lower valuation derived from the peer-based model. We have cut our 2016 and 2017 net profit forecasts by 6% and 8%, respectively.
“We expect SHB to continue gaining market share, with loan growth of 7.5% in 2016F versus 4.5% for the overall sector,” said NBK Capital.
