OREANDA-NEWS. August 18, 2010. Bank Vozrozhdenie will release 1H10 IFRS financials Wednesday at noon (Moscow time), followed by a conference call at 5:00pm the same day, reported the press-centre of OTKRITIE Financial Corporation.

View:  We expect the bank’s 2Q10 net profit to climb 26% QoQ to RUB123m (RUB220m for 1H10), implying just a 3% ROE. The main driver for the improvement in net income is the 20% QoQ growth of fees income. This is the bank’s most sustainable source of revenue (contributing over a third to its total). Another source of improvement is the continued drop in the bank’s cost of risk, as we expect lending quality to stabilize in 2Q10. We believe the bank has been able to maintain flat QoQ NIM at 5.7% since the pace of decline in interest rates has slowed substantially in 2Q10. Still, this represents substantial NIM deterioration from the 7.9% that the bank was earning in 2009. We also anticipate 9% YoY cost growth due to inflation. We expect some more positive news from the conference call as the bank should be able to benefit from stabilization of interest rates. Also more clarity should be coming on the quality of restructured loans as most of them should start paying during the summer.

Valuation and Action: The bank shares trade on a 2010 P/BV of 1.5x and a  2011 P/BV 1.2x, offering a 45% upside to our target price. However, we think that to achieve our target the bank needs to demonstrate greater profitability.