OREANDA-NEWS. June 09, 2010. Sberbank posted 1Q10 IFRS results beating our estimates and the street consensus across the board. The biggest positive surprise was the bottom line, which rose to RUB43.5bn, more than doubling QoQ and exceeding our forecast by 18% and consensus by 12%. Overhead expenses were somewhat higher than we expected, but the C/I ratio stood at a very impressive 36.2%, reported the press-centre of OTKRITIE Financial Corporation.

View: The key takeaways for Sberbank’s results are as follows:

Net interest income: 1Q10 interest income rose 6.5% YoY, largely thanks to coupon income from securities. However, interest expenses were down 1.1% YoY, and net interest income was up 2% QoQ and 12% YoY. Sberbank reported its NIM at 7.3%, a minor decline from the 7.4% figure of a year ago, proving the stickiness of its margin.

Gross loans were down 1.3% YTD (expected, Sberbank guided for a resumption of growth in April only). The securities portfolio added 49%, as Sberbank deployed the excess liquidity into that market.

Non-performing loans grew at a slow pace, reaching 8.9% of gross loans (our forecast and consensus expectations were for more than 9%). Coverage ratio was kept at the very conservative level of 130%, but provisioning charges were down 40% YoY.

Valuation and Action: While we await the conference call today  to clarify if our model needs adjusting,  1Q10 was clearly a very solid quarter. Sberbank trades at a 2010-11E P/BV of 1.7x-1.3x and 2011E P/E of 5.2x, on not overly aggressive assumptions. We reaffirm our BUY rating.