Despite possessing the type of fundamentals that on the surface make it look undervalued, National Bank of Greece SA (NBG) has languished in 2014, undone by poor macroeconomic conditions and lingering worry over toxic assets. However, US analysts have begun to take a more favorable position on the lender’s prospects, causing shares traded Stateside to rise more than 25 percent since May 16.
The Nomura-Deutsche One-Two Punch
On June 3 Nomura upgraded shares of the Athens-based bank from “reduce” to “Buy.” At the same time, they did reduce their price target on the stock slightly, from 3.1 to 2.9 euros, although this can be attributed to the fact that NBG’s stock has dropped since they last weighed in.
It bears mentioning that Nomura downgraded chief rival Piraeus from reduce to "Neutral." While Greek’s Big Four of NBG, Piraeus, Alpha Bank, and Eurobank are often grouped together, especially when discussing the general malaise of the Grecian banking sector, it appears NBG have somewhat set themselves apart in their chances for a recovery from the Greek banking crisis.
Echoing Nomura’s upgrade, on June 6 Deutsche Bank upgraded shares from Neutral to Buy. Analyst Rahul Shah did offer some caveats, however, saying that he believed NBG “may be less geared than its peers to a macro turnaround in Greece, which could drive bank funding costs down towards Eurozone average levels, and could also result in provisions recoveries as loan quality improves.”
Despite this reservation, Shah felt confident enough in NBG’s revenue growth potential to raise his rating on the stock, citing the bank’s impressive revenue growth and profit potential, saying he ultimately sees “significant upside to their target price.”
Fundamentals and Sequestration in Modern Greece
As the largest commercial bank in Greece, the 173-year-old NBG has been significantly, and negatively, influenced by the contracting Grecian economy. NBG also sports a sizable presence in the similarly economically unstable country of Turkey, which has made turnaround for the bank especially difficult.
Despite being closely tied to two of the most turbulent economies in the Eurozone, NBG has made strides in recovering from the Great Recession via plans for toxic asset sequestration and strong fundamentals. Aping a move made by their maritime neighbors in Cyprus, NBG has made plans to set up a “bad bank” to compartmentalize the scores of bad assets the lender accumulated during the worst of Greece’s recession. In October 2013 bad loans accounted for nearly 29 percent of the bank’s assets.
From a nuts-and-bolts perspective, NBG sports a P/E ratio at a miniscule 0.79, which is usually considered the sign of a company that is fundamentally undervalued compared to their earnings.
NBG EVA Reports Troubling
However, a more detailed look into the bank’s fundamentals via Equities.com’s EVA reports reveals several troubling signs for the lender, analyst upgrades and a shiny P/E notwithstanding. NBG’s net margin, asset turnover, and equity multiplier are all well below industry averages, suggesting the bank is overextended and overleveraged. Concerning the latter point, NBG is leveraged five times more than the industry average, with an equity multiplier of 45 versus a norm of 9.
It also appears the company’s efficiency, per their DuPont breakdown, is dropping. This is not usually considered a good sign and does not traditionally bode well for their expected future performance.
NBG, along with the other major Grecian banks, are eagerly awaiting a proposed $11.4 billion bailout from European financial authorities which could greatly minimize some of these fundamental concerns over the bank’s balance sheet.
Despite these fundamental concerns, investors and the most recent analysts to cover the company are bullish on its prospects to finally free itself from its largely uninterrupted, nearly five-year-long stock price decline.
By 1:20 EST on June 6 shares of NBG had climbed 4.4 percent to hit $4.03 a share.
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