Buy City Union Bank; target of Rs 65: LKP Shares

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Buy City Union Bank; target of Rs 65: LKP Shares

LKP Shares is bullish on City Union Bank and has recommended buy rating on the stock with a target of Rs 65 in its October 1, 2010 research report.

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LKP Shares is bullish on City Union Bank and has recommended buy rating on the stock with a target of Rs 65 in its October 1, 2010 research report.

"City Union Bank (CUB) is one of the oldest south based private sector banks focused on trade and distribution channel (TDC). The established branch network, healthy 11% market share due to legacy and trickle down benefit to TDC through uptick in the manufacturing sector puts the bank in prime position to benefit through loan growth. The ability to adjust growth over economic cycles, improve quality of assets and pricing power versus peers is likely to translate into return ratios remaining firm over the next 2 years."

"Revival in financial performance in industries such as textiles, metals and agri related industries is likely to translate to higher than industry loan growth and improvement in quality of assets on book. Factoring in low leveraged balance sheet, capital raising of Rs 2.5 billion in FY11 we have forecasted loan book growth of 28% CAGR over FY10-12. We expect CUB to report 26% CAGR in NII over FY10-FY12 and higher branch and manpower productivity to translate into 22% CAGR in operating profit. Based on improvement in npa management, we forecast PAT CAGR of 28% over FY10-12."

"At the current price of Rs 45, CUB trades at a valuation of 1.4x FY12E book. The stock is trading at discount to its 10 year historical high of 2.5x (Dec 2007) and significantly above its 10 year median of 1x. The aggressive branch expansion over the next 4-5 years, higher than industry growth and sustained improvement in asset quality is likely to expand valuation. We rate the stock as a BUY and have modeled 2x P/ABV on CUB's FY12E ABV of Rs 32.6 per share with target price of Rs 65 per share," LKP Shares research report.

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To read the full report click on the attachment