OREANDA-NEWS. June 15, 2010. Bank St. Petersburg has released its 1Q10 IFRS results, which came in more than 50% below our estimates on net profit. Below are the key takeaways, reported the press-centre of OTKRITIE Financial Corporation:

Net interest income was in line with our forecasts, but non-interest income was below, mostly on the back of forex trading losses.

Management remained very cost conscious, and overhead expenses actually surprised on the upside—coming 20% below our forecast.

The biggest difference from our model came on provisioning, which—in contrast to the significant QoQ declines we saw for Sberbank and VTB—remained almost unchanged QoQ.

View: We do not have a consensus estimate, but believe we have been more aggressive than the average. The company’s core banking business is showing improvement, with NIM stabilizing at 5.6% and its loan portfolio (before provisions) showing growth (+23%). The very strong focus on costs is a definite positive in the still feeble banking environment and current economic conditions. However, loan quality has yet to turn around, which is a negative surprise to us.

Valuation and Action: Bank St. Petersburg remains a turnaround story in the making, and once its NPL situation starts to normalize, we will see a dramatic improvement in net profit. It is the cheapest bank in our covered universe, trading on a 2010-11E P/BV of 1.1-0.9x. We will adjust our 2010E forecasts in view of the 1Q numbers and guidance provided during the conference call.