Wood - price target of 26.71 lei for Banca Transilvania shares, in the next twelve months

Analysts from Wood & Company maintain their "Buy" recommendation for Banca Transilvania (TLV) shares, with a target price of 26.71 lei, in the next twelve months, about 15% above TLV's quote from yesterday, from the first part of trading session, according to the latest analysis report of Wood, published on the BVB Research Hub website.

"We maintain our "Buy" recommendation with a slightly lower target price of 26.71 lei/share," the report states.

The previous target given by Wood analysts for the credit institution's securities was 27 lei. "In our opinion, the bank is the most growth-oriented among Romanian banks, and we believe that it is possible that the market will not adequately reward its superior profitability compared to comparable companies (eng. peers)", the report states.

Based on Wood's estimates of the bank's results for 2024, TLV stock is trading at a P/BV multiple of 1.27x and a P/E of 7.0x, which is not "outrageously" cheap. However, compared to BRD (which trades at a P/BV of 1.25x and P/E of 8.2x based on 2024 earnings estimates), analysts see TLV stock as more attractive given its higher profitability (margin of 19.6%, compared to 15.9% in the case of BRD, based on estimated results for 2024).

"Furthermore, Banca Transilvania appears to be in a privileged position to acquire OTP's operations in Romania, a factor we see as a price catalyst. While this may bring some uncertainty around dividend estimates for 2024 and further margin compression in the near term, we believe this transaction would create long-term value for TLV shareholders. Therefore, we consider it as an element that can have a positive impact on our forecasts. Banca Transilvania remains our first choice in the Romanian banking space", states the report of the Wood team.

According to the document, analysts' forecasts include the situation created by the court's decision on the acquisition of Volksbank, by which the bank was asked to pay a tax of 420 million lei.

"Profitability remains high, but should normalize in the coming years," says the Wood team's report. "We expect the rate of increase in profits before provisioning to be reduced to a single digit next year, and the net profit to decrease by 8% due to: 1) provisioning related to the acquisition of Volksbank; 2) of a higher CoR (n.r. provisions/average value of loans granted); 3) of the new bank tax, which will be added to the compression of the net interest margin. Despite this, we expect return on equity (ROE) to be in the upper double-digit range in 2024 and for the remainder of the forecast period, before normalizing to more sustainable levels of 15-16%."

Among the risks mentioned in the report are "populist measures by politicians before the election year 2024", respectively additional taxes applied to the sector, weaker GDP growth or "sticky" inflation.

To evaluate the Banca Transilvania share, the Wood team uses the method based on multiples (P/BV and P/E) and the Gordon growth model, according to the analysis report.