Target price reached for Banco Pastor

As mentioned in one of my earlier postings, Spanish banking group Banco Pastor is a small yet ambitious one. In November 2006, I decided to add Banco Pastor to my list of stock picks at the price of EUR 14.15, with a target price of EUR 18. This target has now been reached less than six months later, though I continue to be impressed with the bank's results. In the first quarter of 2007, the group's earnings went up 31% whilst the amount of new clients went up 20%. The company's progress has to be admired and even though I still consider Banco Pastor a takeover target amidst the European banking consolidation, I must admit that the Spanish banking group is everything but cheap. After all, ABN Amro is currently for sale at 14x earnings, whereas Banco Pastor is valued at 30x earnings. Hence, I think it is wise to close this position at exactly the price targeted, leaving us with a gross ROI of some 27%.
The author had no position in Banco Pastor at the time of writing.

Iberia target price reached

Two months ago, I mentioned that Iberia Lineas de Aereas de España SA, Iberia in short, was undervalued and that the company's turnaround would be rewarded shortly. The price target of EUR 3.30 has now been reached and I think the stock is sufficiently valued at a forward p/e of 18 (assuming the median estimate EPS of 0.18, which I think should be feasible). Iberia presented a significantly improved load factor over 2006 and shows good results on long haul flights whilst domestic flights have been reduced substantially. Iberia expects the more profitable long haul flights to make up 42% of total revenues, versus 32% in 2004. This will happen at the cost of domestic flights, with medium haul flights expecting to be stable. Impressively, the gap with Air France on long haul flights from Europe to Latin America widens and it is more and more likely that its target of a 23% market share is going to be met. Considering all the above and especially keeping in mind the forward p/e of 18 based on current estimates, I would advise to hold the stock with the previous price target of EUR 3.30 as a stoploss.

Iberia's credible business model

Sometimes you come across these companies which you almost instantly develop a feeling of admiration for, simply because of their business model. One of those companies for me is Iberia. Iberia Lineas Aereas de Espana S.A. - as it's officially called - has had three difficult years, with competition getting stronger and stronger, especially on domestic and medium haul flights. Competition on medium haul flights (read: flights within Europe to or from Madrid) mainly comes from low cost carriers and Air France/KLM. Especially the low cost carriers are gaining market share rapidly and this has slightly eroded Iberia's market share as well as its margins. A similar thing is happening in the domestic market where SpanAir aims for market leadership in 2009 and high speed train operator AVE will also offer strong competition. In that situation, there are two things you can do: become a price fighter and see margins erode further with at best a stable market share or shift your focus to other markets. Well, Iberia has chosen to do both. The Spanish airline company has decided to increase its focus on long haul and aims to make Madrid the number one hub for flights to and from South America. The past two years, it has been rather successful and saw its position improve into taking over market leadership on Madrid to South America flights from Air France/KLM. Moving up from a current 18.7% towards a 23% market share in 2008 is considered 'feasible', despite tough competition from low-cost AirMadrid as well as Aerolineas Argentinas. In addition to improving its market share on these Atlantic flights, Iberia is also helped by an improving economic situation in South America, which leads to a healthy increase in air traffic. At the same time, Iberia set up its own low cost airline company 'ClickAir' in February this year. Another factor one should take into account is fuel prices. The expectation for fuel prices in 2007 is certainly more favourable than the 2006 situation, which should have a positive effect on corporate earnings. The company's plans to focus on profitability before topline growth - through an increase in business class tickets and self check-in and savings in personnel cost - should create some extra shareholder value. This has led analysts to be very positive about EPS estimates for 2007, which are expected to double. Now one could say that the stock is not undervalued at this time, which is probably true. But against this, the strategy of changing its corporate focus whilst improving profitability is one that certainly seems to pay off. I would therefore still recommend this stock at its current price of Eur 2.81, strongly influenced by its credible business model as well as by recent strong rumours on Lufthansa interests in Iberia. Update: Businessweek reports that AirMadrid has just seen its licence suspended by Spain's Civil Aviation authority, leaving thousands of passengers stranded.

Banco Pastor: a strong focus on shareholder value

Banco Pastor S.A. (MCE:PAS) is the 7th largest banking group in Spain and may be considered a relatively small, but growing bank. The Group has 48% of its 569 branches in Galicia and 52% spread across Madrid, Catalunya, Levante and Andalucía and has a target of 700 branches in 2008. Banco Pastor expects to double the average shareholder value created by the Ibex35, based on an ROE increase from 13% in 2005 to 19% in 2008. Currently, Banco Pastor is well on schedule and this is certainly reflected in this year's share price growth. After the stock split in June this year, it moved from 10 to well over 14 in five months. Still, enough potential for the coming years. Dividend has been stable at an annual EUR 0.52 per share. Another reason to buy is that this bank considered one of Europe's most likely banks to be taken over, according to NCB. Currently, the fund looks overbought in the daily chart, hence it may be better to wait for a correction. Anywhere below EUR 13 should be a great chance to buy.