ProCredit Holding is a Germany-based group operating regional banks across South Eastern and Eastern Europe and Ecuador. The banks focus on SMEs and private middle-income and high earners.
Investment summary
ProCredit Holding (PCB) remains profitable despite further loss allowances in Ukraine, with Q322 annualised ROE of 4.4% (2.7% in the first nine months of FY22; 9M22) and 9M22 ROE excluding Ukraine at a solid 9.0% (versus 7.3% in 9M21). The strong 21% y-o-y growth in operating income in 9M22 to €246.6m (15.0% y-o-y in Q322) allowed PCB to absorb recent cost inflation (including high wage pressure and one-time expenses related to the war in Ukraine). As a result, the 9M22 cost-income ratio (CIR) was 60.7% versus 62.4% in 9M21. PCB still guides to an FY22 ROE substantially below the FY21 level of 9.7%, while expecting 10% in the medium term (which we consider achievable). Its shares are trading at a very undemanding P/BV FY22e ratio of 0.24x.
Russia’s invasion of Ukraine has introduced macroeconomic and geopolitical uncertainty in the region and the World Bank expects a 45.1% GDP contraction in Ukraine this year. However, it also expects 2–4% GDP growth in 2022 and 2023 for most countries where PCB is active. PCB’s in-depth, impact-oriented relationships with SME borrowers (92% of the loan book at end-June 2022), prudent credit risk management and solid capital base (CET-1 ratio of 13.7% at end-June 2022) should help it weather the near-term turmoil. Longer term, PCB’s business should be assisted by the low banking sector penetration in the region.
