OREANDA-NEWS. August 27, 2010. Sberbank posted 2Q10 IFRS results, revealing a net profit of RUB20.8bn. This represents more than a 50% QoQ decline, underperforming our estimates and consensus forecast. The bank’s NIM dropped 130bp from 1Q10 to 7.1%, as provisioning charges remained little changed and costs rose 9%. Gross loan book grew 1.2% QoQ, and NPLs outpaced expectations at 9.1%. The overall balance sheet climbed 4%, thanks to a 7.4% QoQ rise in retail deposits, reported the press-centre of OTKRITIE Financial Corporation.

View: Even though net profit underperformed our estimates and consensus forecasts, which we see as only slightly negative since the bank’s core business remains strong. We believe that by allowing lower margins Sberbank is able to generate higher commission revenues, thus raising the overall core income 2.3% above our forecast. We also see the stabilization of interest rates in higher inflation environment as supporting Sberbank’s NIMs in upcoming quarters. As the bank’s NPLs increased at a slower pace than we expected, we treat the higher provisioning charges as a conservative management approach. The only disappointment on the P&L side was cost growth. In terms of the balance sheet, lackluster lending growth (1.2% vs. 4.7% by the market) was expected, and we think that lending guidance from management will be one of key issues in the company’s conference call.

Valuation and Action: Sberbank trades on a 2011E P/BV of 1.6x, with a target price of USD4.1/share. We suggest using the current weakness as a buying opportunity.