CEE rankings 2005: Banks fly high in emerging Europe
Emerging Europe results tables
CZECH, ESTONIAN, POLISH and Hungarian companies performed strongly across several industry sectors and other categories in Euromoney’s first annual central and eastern European companies poll. Hungarian bank OTP convincingly topped the overall poll, with other banks – Estonia’s Hansabank, and Poland’s Bank BPH – and Czech utility CEZ all in the top five.
According to Wlodek Giller at Deutsche Bank in Poland, Hansabank’s impressive showing in the poll and outstanding results may be attributed to an “excellent management with a clear strategy upon which they constantly and effectively deliver”.
Some of the biggest winners in the poll are Polish banks. Analysts say that it was the best year ever for Polish banking and GNP growth is expected to come in at more than 5% in 2005. With no cut in interest rates expected, the positive outlook appears likely to continue.
This was reflected in the performances of some of the biggest Polish banks. Pekao, PKO and Bank BPH were all cited by the analysts that Euromoney contacted. All three reported significant growth in their return on equity over the past year, by four to five percentage points to 17% to 18%.
PKO posted net profits of $502 million in 2004 (and plans to pay a dividend of $201 million). Pekao announced record profits of $448 million and BPH posted an impressive 2004 net profit of $264 million.
BPH was commended by Marcin Jablczynski, analyst at BZ WBK in Poland, for what he sees as a “sensible growth strategy in retail banking as well as a successful safe market-share expansion”. This expansion took place in a year when BPH was able to post a 2004 net profit that was 144% higher than in 2003.
Józef Wancer, Bank BPH president, says that this year, as in 2004, the company plans to boost profits through loan growth. He says that “analysts believe that the market for loans will grow by 10% this year – we plan to grow even faster.”
Some analysts, however, such as Andrzej Nowaczek of Credit Suisse First Boston, have reservations about BPH’s current expansion-based strategy. He believes that the bank “may be growing too fast as its growth rate is at three times the sector average”. There is a clear danger of booking future bad loans. Nowaczek believes that the larger Polish banks such as PKO and Pekao are “in a much better position for growth simply because of their greater size and therefore their greater capacity for expansion”.
OTP in Hungary is perhaps the most progressive bank in the region. It was voted the overall winner in the most convincing and coherent business strategy. One analysts who voted for it points out among other qualities that its financial results “were excellent and could continue to be good into the latter half of 2005”.
Analysts have attributed these excellent financials to beyond average growth which is reflected in a robust balance sheet. They point out that there is room for more growth as well as the new opportunities based on a strategy of fee repricing that has recently been in the works.
There are, however, fears that the bank might be put under pressure by falling interest rates. It will try to counter this with a growth in international operations in the next 12 months.
Novaczek believes that this aspect of the bank’s strategy is “not yet at a stage where it can positively affect the short-term profit outlook”, but he believes that “it will certainly have a positive impact in the long term”.
Residential loans leader
Another outstanding company in the Hungarian banking and finance sector is FHB. Over the past three years, FHB has shown impressive growth and profitability according to the analysts polled, who see it is one of the dominant players on the highly promising Hungarian residential loans market. Andras Zekany, equity research analyst at ING Corporate Finance & Equities, highlights the excellent performance of the company in 2004, naming it as an “outstanding company in the region”. He points out that FHB shares have “tripled in value this year, despite an unfavourable regulatory environment”. This success is “mainly due to their excellent strategy, a state-of-the-art management and very impressive investor relations activity”. He believes that the bank “will be able to increase its net income by 75% with a return on equity above 40%”.
Another Hungarian company that has impressed equity analysts is telecommunications provider Matav. According to Alastair Jones, at Morgan Stanley in London, the company has “been vocal on its gearing and dividend distribution policy which it has adhered to faithfully”.
The Czech Republic’s CEZ, which has grown from a local power producer, and has developed through local acquisitions into an integrated power producer and distributor, is also cited as a leader by many of the analysts Euromoney contacted.
Recently the company started to expand abroad with an avowed objective of becoming the leader of the electricity market in central and eastern Europe. Wlodek Giller of Deutsche Bank in Poland points out that the company’s “very successful restructuring strategy combined with an acquisition strategy that has already borne fruit is the reason for their recent successes”.
Popular diversification
CEZ’s focus on expanding its range of business activities, in addition to generating and distributing electricity, has been popular with analysts. Emilia Zampieri of Patria Finance in the Czech Republic draws attention to the success of a strategy that began with the acquisition of three power distributors in Bulgaria and is now considering further expansion into Romania, Poland and Russia.
Thomas Gatek of Patria Finance believes that “as CEZ is in the bottom of its investment cycle it is in an excellent position in that it can now afford to increase its debt”. He believes that the “timing could not be better for the company to make acquisitions – the assets are there for them to purchase, and they are in a position to make those acquisitions”.
The only possible issue that could raise some problems for the company is “whether they will end up over-paying for these acquisitions”.
Russian companies that stand out include Ros Business Consulting (RBC), one of Russia’s leading internet holding companies and currently one of the country’s top information providers. A major developer of internet solutions for large and medium-size businesses, it is cited as an example of a successful start-up in Russia.
Nadezhda Goloubeva, senior telecoms analyst at Aton, points out that “unlike many other Russian companies, RBC is not politically affiliated and its success is largely due to its management’s efforts”.
Two other Russian companies that stand out are Vimpelcom and MTS.
Vimpelcom, the first Russian company to list its securities on the New York Stock Exchange, was cited by Goloubeva as the “most dynamic cellular operators in Russia as it continues its expansion strategy”.
She also points out the success of Mobile TeleSystems (MTS), one of the biggest players in Russia’s growing cellular network market. The company has the largest number of subscribers of operators in all eastern European and CIS countries.
