US investment house Merrill Lynch has issued a positive assessment of Bank Hapoalim's (LSE:BKHD; TASE:POLI) third quarter results, raising its price objective for the bank's shares from NIS 15.8 to NIS16.2. In a note entitled "Good performance; more to go…", Merrill Lynch analyst Zekeriya Ozturk says this is despite some negative effect of potential regulatory changes on mutual and provident funds.
"Hapoalim recently released its Q3 04 results, and posted NIS 590 million net profit, representing 16.9% annualised ROE. For the first nine months, total profit stood at NIS 1.64 billion (15.8% annualised ROE). "However, a large portion of this was non-recurring gains related to Signature Bank. Adjusted ROE stood at 12.7%in annualised terms, Ozturk writes. .
"On the back of the results, we upgrade our net profit figure from NIS1.86 billion (in real NIS 1.60 billion) to NIS 2.11 billion for 2004 and from NIS 2.10 billion (in real NIS 1.88 billion) to NIS 2.14 billion. Also, we switch to nominal earnings in our valuation model and database.
"In 2004, we expect 2.87% net interest margin, moving up to 2.88%in 2005.Despite quarterly volatility of the net interest margin, there is a slight upward trend since 1999.
"Loans were still stagnant in Q3 and it seems that the recovery would come very slowly. We think, it is partially due to the banks’ unwillingness to lend at too low interest rates. However, an increase in the number of products may increase the overall yields in the long haul.
"Fee and commission income is another story; in our model we initially ignored any potential disposal of the mutual &provident fund management. Yet, in our valuation we deducted the potential negative effect. As the details of the implementation are yet to be disclosed, a top down approach, we thought, would be more appropriate.
"We maintain our Buy (C-1-7) recommendation and slightly increase our price objective from NIS 15.8 to NIS 16.2.This time, however, we sliced 10% of its fair value due to expected changes in the system."
It was reported yesterday that US investors in Bank Hapoalim were considering selling off shares in disappointment at the bank's third quarter results, which relied heavily on the one-time gain from the Signature Bank issue.
In this morning's trading on the Tel Aviv Stock Exchange, Bank Hapoalim shares are down 0.55%, at NIS 12.65.
Published by Globes [online] - www.globes.co.il - on November 29, 2004