Deutsche Bank was impressed with what it called Israel Discount Bank's (TASE: DSCT) strong second quarter results, and has raised its recommendation on the share to "Buy" from "Hold".
Deutsche Bank analyst Dan Harverd expects Discount to outperform the sector, as he says its 9-11% return on equity target is realistic and in line with his expectations for other Israeli banks, yet it trades at a 0.7 price-to-book value ratio, a 25% discount compared to the other banks. As investors gain more confidence in the bank's outlook and capital adequacy ratio, the stock should outperform.
Deutsche Bank says that Discount has strengthened its income potential while holding costs steady. Discount "fundamentally improved" its income base and outlook by increasing market share in the retail and corporate segments. At the same time, with costs relatively flat, efficiencies have improved and a cost control track record has been attained.
Other measures the bank notes, though not as part of its investment thesis, are the fact that the bank will stop operating two parallel computer systems later this year, and older high cost unionized employees approach retirement.
Another item noted is the removal of the cease and desist order at Israel Discount Bank of New York, which should enable the bank to proceed with strategic initiatives to improve returns.
Deutsche Bank sets a target price of NIS 8.50 for Discount Bank, compared to its current price of about NIS 6.65.
Published by Globes [online], Israel business news - www.globes-online.com - on September 1, 2009
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