Sberbank to Review 1st Year of Strategy-2014 Implementation
OREANDA-NEWS. December 16, 2009. Sberbank held an analyst meeting to review 1st year of strategy-2014 implementation. Overall, our take is neutral, all the key objectives were reiterated and management sounded upbeat both on 2010 guiding ‘conservative’ RUB 100bn earnings and on the medium term, though operating challenges to ongoing reforms remain intact. Key takeaways:
2009 review: focusing on costs and efficiency. The banks have been impressively delivering on the costs’ side, both with increasing efficiency (including a 5.4% staff reduction YTD) and quickly fixing inefficiencies (centralising back-office operations in Moscow & St. Petersburg), as well as improving efficiency. At the same time, the base was laid for future top-line growth and new product implementation, i.e. “Credit Factory”, re-branding, new branch formats, etc.
Corporate business: surprisingly not as strong as it seems. Surprisingly, management noted significant headwinds at transformation of corporate block due to both ‘crisis effect’ as well as outdated processes and staffing problems both in HQ and at territorial banks as well as system of cooperation between them, which will be clearly be key points on agenda in 2010.
DRs scheduled for next year, prefs could be included. The programme launch is subject to the authorities’ clearance (expected by year-end), however, management was more cautious on the timing of the launch. Elsewhere, the inclusion of prefs into the DRs programme is now being considered by management.
International expansion continues to be on agenda, focusing on scalable markets (targeting at least 5% mshare) with high profitability and the CIS being on the top of the list, in addition to establishing a foothold in China and India, as well as the CEE. The recent closing of the BPS-Bank acquisition in Belarus for USD 281mn (or P/BV 3Q09 of 1.34) fits well into that framework. Sberbank remains interested in BTA with negotiations to resume in February, once the agreement with the creditors has been reached.
Sberbank Capital and non-core assets. Not much colour here, reiterating the view that over time SberCap is to stay as a private equity unit of the group, although non-material (USD 6bn AuM) in terms of whole group.
Guidance and key targets for 2014 were reiterated with sustainable ROE >20%, cost income below 40%, doubling ‘share of wallet’ of customers from the current 1.7 products to 3.0, while keeping focus on improving efficiency (by 50-100%) and headcount reduction to 200-220k, international expansion remains on agenda.
Bottom line: Given the mixed bag of news we believe it’s neutral for Sberbank stock. While management’s delivery on the costs has been quite impressive, we are somewhat negatively surprised by the management’s negative perception of the state of Sberbank’s corporate block (which accounts for 80% of its lending operations) as well as management being more opportunistic on the timing of DRs programme launch next year.
At the same time, the medium term story remains fully intact and given the management positive guidance of RUB 100bn earnings in 2010 and provisions peaking in 1H10 we remain bullish on the stock, reiterating our BUY recommendation for both share classes.
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