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.

Target price reached for ABN Amro

I am pleased to report that ABN Amro reached its price target of EUR 28 yesterday on rumours of the company being split up, followed on earlier rumours of the company being merged or even taken over by Italy's Unicredito. As mentioned in my posting on 13th of December, there's a lot going on in the European banking industry and it needs to be watched very closely. For now, I think ABN Amro has limited upside potential and is sufficiently valued, knowing that the rise is mainly caused by speculations about the company's future. I would certainly wait for a correction until buying this fund again. On my list of stock picks, ABN Amro will be 'clicked' at EUR 28.

Will Aareal Bank AG exceed its targets again in 2007?

I just cannot stop mentioning it and thankfully, I am not the only one mentioning it: buy banks, buy banks, buy banks for 2007! After having covered Capitalia, Banco Pastor and ABN Amro, I think it is about time to give my opinion on some of Germany's banks. There are two banks that I particularly like: Aareal Bank AG and Commerzbank, for the simple reason that I am impressed with there EPS growth scenarios. I willl focus on Aareal Bank, which is a real estate bank that seems to be doing very well. After Aareal Bank achieved its full-year new business target of Eur 7 bio already in the first nine months of 2006, it decided to raise the target to Eur 8 bio for 2006, of which 89% comes from Europe. In order to diversify geographically, a new office is planned in Shanghai, which will open up the Asian market, in addition to its growing presence in USA. Its portfolio is well-spread and revenues are received from residential housing, offices, retail, hotels and logistics. Aareal Bank is certainly on the right track when it comes to Non-Performing Loans, with these NPLs being down from 10.7% of its portfolio in 2004 to an estimated 3.1% in 2006. With this impressive improvement, the company has gained a lot of credibility with investors. And when studying its other targets for 2006, whether talking about RoE, Operating Profit or loan loss provisions, all targets are destined to be met. Coming back to EPS growth, this is quite a story: whereas EPS is around 2.21 this year, the sale of property by Interhotel Gruppe (in which Aareal Bank owns a 33% stake) should boost EPS to over Eur 4.00 in 2007. For 2008, the EPS is expected to be Eur 3.00 - 3.50, which should justify a share price of around Eur 42 next year, but if targets are exceeded in 2007 as was done this year, there could be much more lying ahead of us. Aareal Bank is also a potential prey as the real estate industry becomes an increasingly hot target for M&A-mania, as seen in today's takeover of Realogy. To summarise, I believe that a target of 25% above today's Eur 35.50 is feasible in 2007.

ABN Amro's role in the consolidation of European banks

Let's talk banks again today. Not because I am so greatly fascinated by banks, but simply because there's something going on in this industry. After having covered Banco Pastor and Capitalia last month, I'd like to add some more general thoughts today, in particular on Dutch bank ABN Amro. The banking industry, and more specifically the European banking industry, is one that is very fragmented and awaits -in my humble opinion- a major consolidation in the years to come. This is the major reason why I think 2007 is going to be the year that is going to blow some dust off of these financials. This view is backed up by a report by Deloitte (PDF!), which compares the European banking industry with the American banking industry before a consolidation took place. Then there is the fact that Dutch banks generally have quite attractive (I would almost say 'competitive') P/E-ratios. For instance, ABN Amro is valued at 10.7 x earnings, ING Group at 9.8 and Fortis at 9.5 even. If you compare these valuations to those of their European peers, it becomes clear that there is somewhat of a discount. Dutch banks are also on the move. They are eyeing new markets and the best example of this was ABN Amro's acquisition of Banco Antonveneta, which may have opened up the Italian banking market for other European (or even American) players. There is certainly no consolidation needed in this industry in the Netherlands. The combined assets of country's five biggest banks made up 84% of total Dutch banks' assets. This is quite the opposite of Spain, where the five biggest banks made up 44% of total Spanish banks' assets, UK (33%), Italy (27%) and especially Germany (22%). But that does not mean that ABN Amro is not a potential prey for foreign banking groups, as was pointed out by rumours lifting ABN Amro's share price 3% today to Eur 24.10. CEO Rijkman Groenink has always maintained his view that ABN Amro is for sale if the right price is offered. However, the likelihood of ABN Amro being swallowed by a bigger fish is in my opinion quite low and I therefore tend to speculate that it will rather be the one playing its own strong role in the industry's consolidation. And this could be a reason why this bank is attractive, as shown in latest figures on the integration of Banco Antonveneta. Synergies appeared to be much higher than initially expected and restructuring costs much lower. The operating efficiency ratio of ABN Amro may have been higher than that of Antonveneta before the acquisition, but the deal was easy to justify: a similar package of banking services costs an Italian customer an average Eur 250/yr, compared to an average Eur 45/yr for Dutch banks' customers. Also, the customer satisfaction rate in the Italian banking industry is around 15% versus some 85% in the Dutch banking industry*. After seeking the right preys and after getting the required experience in restructuring and integrating these targets, the acquiring parties may be the ones thriving in the years to come. There is great potential in streamlining the diverse natures of Europe's banking industries and knowing that the one who moves first is often the one who is most successful, I would say that ABN Amro has a lot in store in the coming three years. Antonveneta might just be the start of a beautiful story. * 2004, KPMG research report 'Banking Beyond Borders'

Capitalia: the next prey?

Last year, Dutch bank ABN Amro took over Italy-based Banco Antonveneta. To many investors, this seemed a very risky move as the Italian banking industry is not known to be the easiest one to break into. ABN Amro has certainly experienced this, but succeeded at the end of the day. Banco Antonveneta, being the eight largest banking group in Italy, only holds a 3% market share in the Italian market and should therefore certainly not be considered the end of ABN Amro's Italian ambitions. Keeping in mind the above whilst also considering the 7.7% stake that ABN Amro holds in Rome-based Capitalia Gruppo Bancario (MIB:CAP), the most likely scenario is easy to guess. Reuters also mentions that 'corporate marriage' is high on shareholders' agendas. With net profit expected to rise 27% to EUR 1.4 bln, the bank is certainly expected to perform well, which is also reflected in the share price. To a certain extent, the share price includes an acquisition premium, but this premium did partly evaporate as Banca Intesa and Sanpaolo IMI merged to create Italy's biggest domestic lender and a European top eight bank. ABN Amro focuses on Antonveneta "for the time being", so says ABN Amro CEO Rijkman Groenink. No further comments were given with regard to a potential merger of Antonveneta and Italy's fourth largest bank Capitalia, but the likelihood increases day by day. Speculative buy at a current price of EUR 7.10.

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.