 Which two banking stocks is LKP upbeat on?Published on Thu, Aug 25, 2011 at 16:25 | Source : Moneycontrol.com Updated at Thu, Aug 25, 2011 at 16:36 5155 Investors following United Bank. Share this News with them.
LKP is bullish on United Bank of India (UBI), Allahabad Bank (All BK) and has recommended buy rating on the stocks with a target price of Rs 106 and Rs 223 respectively in its August 24, 2011 research report. "Armed with a strong rural and semi urban presence (UBI 40%, All BK 59%) both these banks are well positioned as the second liners of growth in the banking industry. Growth drivers steadily moving towards the East, UBI and All BK with 68% and 41% of branches in eastern states will stand to benefit from these opportunities. We believe that their extensive branch network will continue to benefit in terms of low cost deposits (40% UBI, 30% All BK). The 15%+ growth rates (CAGR FY09-11) across Eastern states will aid the growth of assets expected to growth at 20% UBI and 21% All BK over FY11-13E." "Profitability of UBI has lagged peers we believe that an improvement in CD ratio should protect NIMs in FY12 and contribute to margin expansion in FY13 (3.3%). Further, a higher fee structure coupled with firm recoveries should benefit UBI with higher RoAs (0.6% in FY11 to 0.8% in FY13). All Bk has consistently delivered strong profitability (NIMs 3.8%, RoA 1%).We believe an improvement in operational parameters (100% CBS and movement to a system based npa recognition) at add positively to long term profitability. UBI is trading at 0.8x and 0.7x P/ABV and 3.9x and 2.9x P/E FY12E and FY13E. We have valued the stock at 1.0x (historical average P/ABV of 1.1x) which translates to a target price per share of Rs 106, a 41% upside to current market price. We expect the strong franchise and improving profitability to bring valuations closer to the historical valuations for PSU banks. All BK is trading at 1.1x and 0.9x P/ABV and 5.2x and 4.1x P/E FY12E and FY13E. We have valued the stock at 1.1x (historical average P/ABV of 1.1x) which translates to a target price per share of Rs 223, a 22% upside to current market price. The bank compares well to banking peers on operational and profitability ratios." "We expect UBI to grow loan book at 20% CAGR over FY11-13E v/s 23% over FY09-11. Historical growth was driven by corporate assets while going forward SME, retail are likely to emerge as growth drivers. Focus shifts to profitability and maintaining NIMs as UBI is likely to operate at higher CD ratios of 0.71x/0.72x over FY12/FY13 v/s 0.62x/0.69x in FY10/FY11. The benefit of a strong CASA franchise (40% of deposits) and also factoring in the incremental cost of SA (32%) we believe that NIMs are likely to remain stable in FY12. UBI has historically low fee structure (0.2% fee/ average assets v/s 0.3% BoB, 0.5% All BK). Although the management has hiked fees, we expect contribution to RoA to be low as growth remains muted over FY12. High CD and strong CASA improve employee and branch productivity. Operating profits are expected to grow at 19% CAGR over FY11-13E v/s 49% CAGR over FY09-11. Buy UBI, All BK for target price of Rs 106 and Rs 223 respectively," says LKP research report. Institutional holding more than 40% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment Attachments : UBI_AllBK_LKP_250811.pdf
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