קרן מרדכי
25/05/2014
Moving to Neutral after strong performance
Moving to Neutral after strong performance
Over the past 12 months, we have witnessed a very strong stock performance – backed by results delivery. The share price has come close to our price target while we see earnings momentum easing in coming quarters and therefore we move the rating to Neutral from a Buy and keep our PT unchanged. Nevertheless, we expect the improved capital position (Basel 3 CET1 currently stands at 8.87%, up 14 bps q/q) to eventually allow resuming dividends later this year which should prove supportive to the stock then. We reduce our numbers by 3.6% for 2014 and leave longer term estimates broadly unchanged.
Top line pressure offset by below average cost of credit
Mizrahi reported Q1-14 results 9% ahead of UBS estimates driven by lower provisions. The top line however remained under pressure. NII, which was once again impacted by lower CPI and interest rates, came-in down 11% y/y and was 9% below expectations. Fees were also down 5% y/y and 6.5% below UBSe. NII / Fees miss was partly offset by stronger other income which led to total income just 2.4% below UBSe (down 4.7% y/y). Costs were well contained, 1% lower than expected, down 6.7% q/q and up only 1.4% y/y. As a result, GOP was 4.7% below UBSe, down 13.6% y/y.
Loan growth strong, driven by retail and mortgages
Asset quality trends remain ahead of expectation. Mizrahi delivered NIS5m (-1bn) provisions recovery against UBSe of NIS42m (12 bps) cost of credit normalisation. In our view, cost of credit could normalise towards 13 bps by the end of 2014. Mizrahi's lending trends remained positive, loans increased by 8.1% y/y driven by 11.8% growth in mortgages and 9.2% in loans to small businesses.
Valuation: Lower valuations at domestic peers
Mizrahi is trading on 1x P/TB 14E and 8.1x PE 16E, at a premium to domestic and a slight discount to European peers and above its own historical averages. Our price target is based on GGM (COE 10%, g 3%).
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