Q419 showed good momentum

Attica Bank 18 June 2020 Update
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Attica Bank

Q419 showed good momentum

Q419 results

Banks

18 June 2020

Price

€0.22

Market cap

€102m

€1.14/£

Common equity tier 1 ratio

11.4%

Shares in issue

461.3m

Free float

18.5%

Code

TATT

Primary exchange

Athens

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

17.3

36.7

(48.3)

Rel (local)

3.5

0

(34.8)

52-week high/low

€0.56

€0.16

Business description

Attica Bank is the fifth-largest bank in Greece, with assets of €3.45bn and 55 branches centred around Athens. It has a 2% market share of business banking and around 2% market share of most retail banking products.

Next event

Q120 results

June 2020

Analysts

Pedro Fonseca

+44 (0)20 3077 5700

Andrew Mitchell

+44 (0)20 3681 2500

Attica Bank is a research client of Edison Investment Research Limited

Attica’s Q419 results showed good progress, with revenue sharply up and costs lower than expected. Impairment charges were higher, but underlying PBT was still better than forecast. Uncertainty around the COVID-19 pandemic greatly complicates forecasting at this stage. Our new numbers have higher impairment assumptions, mostly in 2020 and 2021. However, Attica’s strategy of strong asset expansion and its focus on the energy, infrastructure and green economy remains firm. There is just a time shift in achieving income targets. Successful execution would allow ROE to approach 6.8% (previously 7.4%) in 2022. This falls to 4.7–5.3% after factoring in needed rights issues and would provide upside to the shares, now trading at a PBV of 0.23x. We understand that Attica is currently making plans for a third securitisation as it strives to cut legacy NPLs to zero by 2021.

Year end

Pre-provision profit (€m)

PBT*
(€m)

EPS*
(€)

ROE
(%)

P/E
(x)

Price/BV
(x)

12/19

1.6

(23.6)

0.01

1.1

N/A

0.23

12/20e

10.1

(24.5)

0.00

0.0

N/A

0.23

12/21e

39.4

2.7

0.01

0.9

23.7

0.22

12/22e

71.6

31.7

0.07

6.8

3.2

0.21

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Q419 results above estimates

There was good revenue momentum with net interest income (NII) +19% quarter-on-quarter, and fees +138% quarter-on-quarter and +27% year-on-year. Good cost-cutting efforts in administrative expenses resulted in expenses 20% below our forecasts. Losses before impairments were only €1m; our forecast was for an €8m loss. Impairments were higher at 148bp (112bp expected), but an underlying pre-tax loss of €7.5m was still better than our forecast of a €12.5m loss. Attica’s fully loaded CET1 stood at 8.1% (statutory 11.4%), in line with our estimate.

COVID-19 adds to challenge

The uncertainty regarding the COVID-19 economic recession and subsequent recovery means that Attica has not guided to a specific increase in impairments, but has noted that the majority will fall in 2020 and 2021. There have been various fiscal and monetary measures implemented by the EU/European Central Bank (ECB) and Greek authorities to support affected businesses as well as the banking sector, including liquidity funding and banking regulation. We believe that the energy, infrastructure and green economy sectors, which are Attica’s main focus, will remain growth areas, especially after years of underinvestment in Greece.

Valuation: Current PBV of 0.23x

Based on our new forecasts, we continue to expect underlying losses this year and now model an ROE of 0.9% (previously 3%) and 6.8% (previously 7.4%) for 2021 and 2022, respectively. If we factor in the 300–500bp rights issue required for the expansion, the 2022 ROE range would be 4.7–5.3%. Looking further ahead, if management delivers on its strategy, we believe an ROE of 7–8% is achievable, providing upside to the FY21e PBV of 0.23x.

Q419 better than forecast

Attica’s reported Q419 results were above our forecasts, with both revenue and operating expenses better than expected. These more than offset the impairment charges coming in higher than forecast (148bp of net loans vs 112bp). The pre-provision operating loss was €1.0m for the quarter compared to our forecast of an €8.3m loss. After factoring in loan impairments and associate income, the reported pre-tax loss was €7.5m vs our loss forecast of £12.3m.

The year-on-year comparison is greatly affected by the Metexelixis securitisation, which occurred in Q419 and significantly shrank the loan book.

The significant revenue beat was due to a strong increase in fee income and other operating income (essentially gains on securities). Fees rose (with no special one-offs) by 138% quarter-on-quarter and 27% year-on-year to €3.3m. This strong growth was driven by lending and account/network fees – both more than doubled from the previous quarter. Revenue was down by 1% year-on-year, but up 36% on the previous quarter at €18.2m and 16% above our forecast of €15.8m.

Attica Bank has been successful in reducing its operating costs. Q419 operating expenses of €19.2m were significantly lower than our forecast of €24m. This was driven by general administrative expenses rather than payroll. The company has guided that there were no one-offs to lower these expenses.

As expected, the company used its deferred tax assets to offset its reported pre-tax losses. As such, we believe that the pre-provision operating and underlying pre-tax lines remain the more relevant measures of progress than reported net profit.

Exhibit 1: Attica Bank quarterly progression and Q419 estimate

€000s

 

Q418

Q119

Q219

Q319

Q419

Y-o-y%

Q-o-q%

Q419e

Q419 actual vs estimate

Net interest income

13,221

12,801

10,601

9,466

11,310

-14%

19%

11,697

-3%

Net fees and commissions

2,567

1,362

555

1,367

3,256

27%

138%

2,466

32%

Other operating income

49,609

9,212

5,710

2,609

3,684

-93%

41%

1,600

130%

Total revenue

65,397

23,375

16,866

13,442

18,247

-72%

36%

15,763

16%

Total underlying revenue

18,397

23,375

16,866

13,442

18,247

-1%

36%

15,763

16%

Operating expense

(19,350)

(16,471)

(16,863)

(17,743)

(19,223)

-1%

8%

(24,050)

-20%

Pre-provision profit

46,047

6,904

3

(4,301)

(975)

-102%

N/M

(8,287)

-88%

Impairment charge for loans

(2,907)

(5,000)

(9,136)

(3,566)

(5,705)

96%

60%

(3,853)

-48%

Reported Pre tax

42,652

1,905

(9,760)

(8,022)

(6,954)

-116%

N/M

(12,290)

-43%

Underlying pre tax

(4,173)

1,905

(9,983)

(8,267)

(7,481)

79%

N/M

(12,540)

-40%

Net loans

1,592,144

1,566,670

1,550,419

1,537,222

1,547,494

-3%

1%

1,594,456

-3%

Ratios

NIM % financial assets

2.04%

1.95%

1.67%

1.46%

1.69%

1.75%

LLC % net loans

0.64%

1.47%

2.34%

0.92%

1.48%

1.12%

Non-performing % gross loans

41.0%

42.0%

44.0%

46.3%

46.5%

44.9%

Impaired % net tangible assets

114%

117%

123%

130%

121%

125%

NPE % LLA coverage

43%

33%

34%

33%

33%

32%

NPE % coverage with collateral

125%

123%

126%

120%

120%

120%

CET 1 Statutory

13.4%

12.5%

12.1%

11.9%

11.4%

11.7%

CET1 fully loaded (est.)

8.9%

8.7%

8.4%

8.2%

8.1%

8.1%

Source: Attica Bank, Edison Investment Research

Balance sheet momentum was slower than expected, with loans growing 1% q-o-q (we expected 4% growth). Although origination is up, growth in net loans at this stage is still tepid with many loans maturing. There was little change in this quarter in the size of non-performing loans and their level of provisioning. Non-performing loans (NPL) represented 46.5% of gross loans and provisioning cash coverage remained at 33%. Total NPL coverage (ie with collateral) also remained unchanged q-o-q at 120%. On 23 April, Attica announced an agreement with specialist Greek finance company QQuant to outsource management of €453m of its NPLs (this is about half of total NPLs). This was one of the steps that Attica had indicated it would take to free up management resources and focus on rebuilding the business. Most of these NPLs tended to be smaller loans that were more time-consuming to manage.

There were also no surprises on the capital front. The statutory CET1 was 11.4% (our forecast 11.7%), with fully loaded CET1 at 8.1% the same as our forecast. Balance sheet liquidity remained good with a loan to deposit ratio of 59% (Q319: 62%) and Attica’s deposit cost edged slightly downwards in the last quarter of 2019.

Outlook

Transformation strategy maintained

Attica’s strategy of expanding its product range and client base while containing costs remains in place. Its stated aims are to double the loan book in three years, and double the assets in five years. The targeted segments for growth on the business side are energy, green power and infrastructure. The big energy and infrastructure projects, which are needed in Greece after years of under investment, are still likely to happen. Furthermore, this is the type of investment that the Greek government will view as useful to help stimulate the economic recovery.

In the retail segment, the sole target segment is mass affluent professionals. The aim is also to sell more financial products, especially loans and insurance, to a very under penetrated client deposit base.

Attica still plans to purchase a digitalisation platform and believes this is more cost-effective than building it in-house. This is a core part of Attica’s strategy of servicing and targeting clients with a dual modern (digital) as well as traditional client relationship approach. Attica’s successful cost-cutting is enabling it to offset the cost of this digitalisation. Cost-cutting measures still to be implemented include selling more non-core banking assets such as real estate and centralising its bank office by moving to new headquarters.

The bank still plans to carry out further securitisations to cut its legacy NPLs to zero by 2021. We understand that it is currently making plans for a third securitisation. We note that market conditions could affect timing.

Uncertainty about COVID-19 impact

Before COVID-19 reared its head, Greek GDP growth expectations were around 2% for 2020 and 2021. The IMF’s World Economic Outlook report in April 2020 now forecasts that Greek GDP will decline by 10% in 2020 and then rebound by 5% in 2021. This compares with -7.5% (2020) and +4.7% (2021) for the EU area. The IMF assumes that the pandemic only fades in the second half of 2020 as containment measures are gradually rolled back. There is still considerable uncertainty regarding the evolution of the pandemic and the associated economic cost.

Banks are highly cyclical companies and we expect Attica Bank to see a rise in impairments and a slowdown in balance sheet growth. Given considerable uncertainty currently, management has not provided specific guidance in terms of impairments levels. The bank said that it is minimising the operating risk from COVID-19 and ‘adjusting efficiently to the COVID-19 era’. Management has also noted that the impact on impairments will be felt not only this year but also in 2021 and, to a lesser degree, in 2022.

Government and EU actions to support banks

There has been a coordinated action between the Greek and European authorities to shore up the economy and the financial system. Several measures have been taken including fiscal, monetary and regulatory measures and packages. The actions can be split into: 1) regulatory relaxation regarding capital and increasing liquidity; and 2) pumping new money into the economy through the banking system. The positive side of COVID-19 for Attica is targeted actions by the government to support the funding of corporates in 2020 and of the recovery in 2021.

The ECB has eased the conditions for targeted longer-term refinancing operations (TLTRO III). This is important in providing liquidity and funding to companies. It cut the interest rates in TLTRO III by 25bp until June 2021 and eased collateral terms for banks, including a waiver on accepting Greek sovereign debt instruments in Eurosystem credit operations. The more flexible collateral terms include smaller haircuts on collateral valuations, easier conditions for the use of credit and higher risk tolerance. An example of these rules is a reduction in the non-uniform minimum size threshold for loans from €25k to zero for smaller business. In particular, these changes are geared to help support lending to smaller companies, which is a core focus for Attica Bank.

The ECB also announced a €750bn Pandemic Emergency Purchase Programme (PEPP) in March. This is a new asset purchase programme for private and government securities aiming to reduce risks to the monetary policy transmission mechanism.

The EU has set up a Coronavirus Response Investment Initiative (CRII), which allocates €37bn of cohesion money to be spent across the EU to strengthen healthcare systems, support SMEs, short-term schemes and community-based services.

The European Investment Bank (EIB) offered €2.5bn in financing for liquidity to Greek banks to support new corporate loans. This is part of the €40bn of funding that can be mobilised by the EIB to support companies under pressure from the economic impact of the coronavirus. These loans are backed by the EIB and the EU budget. The financing works as dedicated guarantee schemes to banks as well as liquidity lines for working capital support for SME and mid-caps. There is also some money allocated for asset-backed securities purchasing programmes to allow banks to transfer SME loan risk.

In terms of bank regulation, banks have been given the flexibility of only recognising a loan as defaulted (and requiring higher levels of impairments) if it is 90 days overdue. Submission of the strategy for non-performing exposure has been postponed until further notice. EU-wide stress tests conducted by the European Banking Association (EBA) have been postponed until 2021.

At the Greek government level, the key measures were: (1) cancellation of the Greek government primary surplus target of 3.5% for 2020, allowing the government greater fiscal stimulus; (2) a €6.8bn support package for businesses, involving both direct funding and government guarantees; and (3) financial support schemes for unemployed, self-employed and affected workers (€800 per person per month). There were also postponements of some business tax liabilities.

Capital still needed for growth

In our previous note, Refocus and grow, published on 11 March 2020, we estimated that Attica would have to raise 300–500bp of equity to fund its balance sheet expansion. This is equivalent to €117–193m based on risk-weighted assets (RWA) at the end of 2020 and based on the assumption that the CET1 could trough at 7% in 2021. At the midpoint of the range of our assumptions, we have the CET1 reaching a trough of 6.3%. Therefore, while we think the range is still in line with our current assumptions, the actual numbers might be skewed to the upper end of the range.

As before, this has an effect on the valuation as we should assume the inevitable impact of the share dilution from raising capital (see Valuation section on pages 6–8).

Forecast changes

Although Attica’s Q419 results were encouraging, the economic impact and uncertainty resulting from the COVID-19 pandemic have led us to lower our earnings forecasts. As mentioned above, it is difficult to get a clear idea of the impact of the pandemic and so the numbers may be considerably higher or lower in the future, particularly due to the impairments.

We have cut back lending and business volumes in 2020. Management has guided to adding €300m in net loans and this is the number that we are now using – from €1.55bn in FY19 to €1.85m in FY20e (previously €1.9bn). We have therefore cut our forecasts for loan growth by 3% to 19% y-o-y. We have reduced NII by 11% (37% y-o-y) and fees by 2% (to 129% y-o-y). We expect the pace of growth to be towards the end of 2020 as Greece starts to recover from the lockdown. Fees growth will be driven by expanding the client base and new core products such as insurance as a result of the alliance with Interamerican Insurance, part of Achmea, the Dutch insurance group, which is expected to kick in 2021.

The anticipated economic recovery means that we assume the impact of the crisis will be significantly less visible by 2022 – we have only cut our revenue forecasts by 2% in FY21.

Strong cost performance in Q419 and the heightened need to be careful with costs has led us to cut our cost assumptions by 2% in 2020 and we keep cost inflation around 1% pa.

We have reduced our pre-provision operating profit forecast for 2020 from €15.4m to €10.1m due to the lower revenue assumptions mentioned earlier. As the economy continues to recover in 2021, the pre-provision forecast adjustment is much smaller – from €40.3m to €39.4m.

Loan loss charge (LLC) assumptions are the most difficult as we do not know the extent and depth of the recession, nor the pace of the economic recovery. The bank expects the bulk of the impairments to come in 2020 and 2021, and we have raised our assumptions for these years from 134bp to 197bp of net loans in 2020 and from 128bp to 177bp in 2021. There is a considerable risk of deviation from these forecasts. We have therefore presented an analysis of pre-tax profit sensitivity to changes in the LLC rate. We use 2021 as a base year as this is the first year in which we expect Attica to achieve an underlying profit – ROE of 0.9%. If we flex the base case by moving the impairment charge by 10% in either direction, the ROE goes up to 2.2% or -0.4%. With a 20% increase in the LLC rate, the pre-tax loss amounts to €4.6m and the ROE is -1.7%.

Exhibit 2: LLC sensitivity on 2021 forecasts

€000s, 2021e

LLC -10%

base case

LLC +10%

LLC +20%

LLC

-32,916

-36,573

-40,231

-43,888

LLC rate over net loans

2.3%

2.5%

2.8%

3.0%

Pre-tax profit

6,326

2,669

-988

-4,646

% change from base

137%

0

N.M.

N.M.

ROE (%)

2.2%

0.9%

-0.4%

-1.7%

Source: Attica Bank, Edison Investment Research

We have cut underlying pre-tax profit (which is the key indicator) forecasts from an €8.8m loss to a €24.5m loss for 2020 due the higher impairments and lower revenue forecast. The higher impairments result in underlying pre-tax profit falling from €12.4m to €2.7m in 2021. By 2022, the reduction is only 15%, from €35.4m to €30.2m.

Exhibit 3: Estmate changes

€000s unless stated

FY19

FY20e

FY21e

FY22e

Actual

Old

New

Chg (%)

Y-o-y

Old

New

Chg (%)

Y-o-y

Old

New

Chg (%)

Y-o-y

INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

NII

43,852

67,613

60,157

-11%

37%

87,348

84,988

-3%

41%

112,687

110,332

-2%

30%

Fees

6,540

15,325

14,967

-2%

129%

21,455

21,155

-1%

41%

29,287

29,068

-1%

37%

Reported revenue

71,606

87,739

80,724

-8%

13%

113,604

110,944

-2%

37%

146,774

144,199

-2%

30%

Costs

(70,043)

(72,319)

(70,593)

-2%

1%

(73,264)

(71,501)

-2%

1%

(74,369)

(72,564)

-2%

1%

Pre-provision profit

1,563

15,420

10,131

-34%

548%

40,339

39,443

-2%

289%

72,404

71,635

-1%

82%

Impairment loans

(24,202)

(22,743)

(33,475)

47%

38%

(26,454)

(36,573)

38%

9%

(35,458)

(39,930)

13%

9%

Underlying PBT

(23,647)

(8,824)

(24,544)

178%

-4%

12,385

2,669

-78%

-111%

35,447

30,205

-15%

1032%

Reported earnings

4,998

(7,807)

50

 

 

14,747

4,280

 

 

38,121

31,896

-16%

645%

Cost/Income ratio

97.8%

82.4%

87.5%

64.5%

87.5%

50.7%

50.3%

LLC/net loans

1.54%

1.34%

1.97%

1.28%

1.77%

1.37%

1.54%

ROE

1.1%

-1.6%

0.0%

3.0%

0.9%

7.4%

6.8%

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan book (€m)

1,547

1,903

1,849

-3%

19%

2,331

2,272

-3%

23%

2,934

2,902

-1%

28%

Deposits (€m)

2,608

2,848

2,866

1%

10%

3,226

3,236

0%

13%

3,672

3,673

0%

14%

CET1 fully loaded

8.1%

7.3%

6.8%

-8%

-17%

7.0%

6.3%

-10%

-7%

6.9%

6.3%

-9%

0%

NPE as % loans

46.5%

38.8%

41.5%

7%

-11%

32.8%

34.8%

6%

-16%

27.2%

28.3%

4%

-19%

NPE cash coverage

33.0%

33.3%

31.8%

-5%

-4%

34.2%

34.0%

-1%

7%

35.3%

35.7%

1%

5%

Source: Company data, Edison Investment Research

Sensitivities

The most significant risk factors for Attica Bank are as follows:

Execution risk: the bank plans to grow its balance sheet significantly over the next few years. Such a fast pace of growth may bite later if credit quality turns out to be poorer than anticipated. There is also the risk that the bank is not able to hire the people needed to help drive this growth.

Cost structure requires a lot of growth: with a high cost to income ratio and low profitability, the delta in terms of revenue or cost variance can be high. Recent results have been short of previous guidance.

Capital: the bank will need to raise equity to drive growth. Although we believe the current share price already incorporates capital concerns, it might be more earnings dilutive than envisaged. In addition, there is no guarantee that enough capital will be raised to deliver the planned expansion.

COVID-19: banks are highly cyclical companies and the final impact of COVID-19, eg the depth of the crisis as well as the strength and speed of the subsequent economic recovery, is still unknown. The key impact is on asset quality and impairments. The pandemic and its economic consequences could also delay Attica’s planned securitisations, as well as the rights issues needed to fuel its expansion.

Regulation: regulation is constantly changing and may result in tougher or more expensive compliance standards.

Valuation

Greek bank shares have dropped sharply due to economic concerns about the COVID-19 pandemic, with share prices falling 30–50% since our outlook note published on 11 March. However, Attica’s share price has been more resilient, falling from €0.23 to €0.22 over the same period. Greek banks are trading on an average P/BV of 0.18x (excluding Attica), ranging from 0.12x for Piraeus to 0.26x to Eurobank. Attica is trading at a P/BV of 0.23x. At such depressed ratings, the market is pricing in significant losses driven by impairments for Greek banks and their likely need to raise equity. It is also driven by investor sentiment of great uncertainty regarding the trajectory of the COVID-19 pandemic and the ultimate economic cost.

Although consensus earnings estimates have come down, stocks are trading on very low P/E ratios. The market is clearly pricing in considerable earnings risk. Forecast ROEs (3.0% for 2021, 4.7% for 2022) do not correspond to trading P/BVs. Furthermore, since we estimate a loss for Attica Bank in 2020 and ROE of only 0.9% in 2021, this hampers P/E comparisons with peers. Attica’s 2022 ROE of 6.8% (albeit also with earnings risk and paying no income tax) is in line with banks such as Eurobank and NBK.

Exhibit 4: Greek banks – market multiples

Price

----------------------- P/E (x) ----------------------

----- P/BV (x) -----

------------- ROE ------------

2019

2020e

2021e

2022e

2020e

2021e

2020e

2021e

2022e

Attica Bank*

0.22

N/M

N/M

23.7

3.2

0.23

0.22

0.0%

0.9%

6.8%

Alpha Bank

0.69

7.8

15.1

8.1

4.2

0.13

0.16

0.9%

1.5%

3.6%

Bank of Cyprus

0.64

3.6

429.3

5.4

3.8

0.15

0.15

1.4%

3.7%

4.5%

Eurobank

0.42

7.8

8.2

4.7

3.8

0.28

0.26

2.7%

5.0%

6.6%

National Bank of Greece

1.36

4.5

6.1

5.6

4.3

0.23

0.22

3.3%

3.5%

6.0%

Piraeus

1.65

7.6

-11.2

11.4

3.9

0.12

0.13

0.3%

1.3%

2.8%

Peers average

6.3

89.5

7.0

4.0

0.18

0.18

1.7%

3.0%

4.7%

Attica vs peers

n.m

n.m

237%

-20%

25%

21%

n.m

-68%

45%

Source: Refinitiv, Edison Investment Research. Note: *We do not factor in any likely rights issue dilution for Attica Bank. Prices as at 18 June 2020.

Valuation assuming rights issue

We continue to model Attica Bank’s valuation based on the assumption of a rights issue. On our assumptions, the bank’s fully loaded CET1 will drop to below 7% in 2021 and 2022. Since we believe it will have to operate on 10–12% in the future, we think Attica will have to raise equity. This is something that management has already highlighted and which the market expects. We have assumed a possible share issue at €0.20 per share (vs the current share price of €0.22) in late 2020 (or perhaps in 2021 depending on market conditions). We are assuming that 300–500bp of capital will be raised and Exhibit 5 shows the impact on FY21e EPS dilution – from 55% to 67%. The amount raised based on our estimates ranges from €111m to €185m. As before, we neither assume any gains on non-core asset sales (although likely) nor any gains from securitisations. That said, Attica has previously been able to make capital gains from selling the junior note on securitisations.

Based on our current estimates and assumptions, profitability should start to normalise in 2022. With no right issue, the estimated FY22 ROE is 6.8%. For 300bp to 500bp of raised equity, the estimated ROE ranges from 4.7% to 5.3%. As Exhibit 6 shows, 2021e P/BV would increase from 0.23x (no capital hike) to a range of 0.40–0.48x.

As we previously stated, the bank is currently losing money and needs capital and therefore investors need to take a longer view. COVID-19 has made recovery a longer and more arduous process.

In our valuation, we use the (ROE-g)/(coe-g) formula with about 2% (close to inflation figure) growth and a COE of 12%. To justify the P/BV of 0.40–0.48x (after rights issue dilution), the ROE needs to be c 5–6% by about 2021. On our assumptions, this is achievable but with some considerable risk, as noted in the Sensitivities section on page 6 and with the added uncertainty of COVID-19. We do think that Attica could sustain an ROE of 7–8% in the longer run if it delivers on its expansion plans while retaining good control on credit quality, and if the Greek economy recovers strongly from the COVID-19 recession and then remains buoyant. Small business lending can be a profitable niche, particularly with good relationships, and smaller banks can make a difference in service quality that bigger banks do not always deliver to smaller business clients. Again, this suggests there is upside potential at the current price of €0.22 if Attica raises equity and meets our forecasts.

Exhibit 5: Earnings dilution scenarios from equity issues

No new equity

300bp

400bp

500bp

Money raised (€000s)

0

111,176

148,234

185,293

% of current market cap

0

114.8%

153.0%

191.3%

Number of new shares at €0.20

0

555,878

741,171

926,464

Total number of shares (000s)

461,254

1,017,132

1,202,425

1,387,718

Earnings (2021e, €000s)

4,280

4,280

4,280

4,280

EPS with rights issue (2021e), €

0.009

0.004

0.004

0.003

FY21 EPS dilution

0

-55%

-62%

-67%

P/E ratio (2021e) (x)

22.6

49.9

59.0

68.1

P/E ratio (2022e) (x)

3.0

6.7

7.9

9.1

ROE (2021e)

0.95%

0.74%

0.69%

0.65%

ROE (2022e)

6.80%

5.29%

4.97%

4.69%

BV 2020 (€000)

448,800

559,976

597,034

634,093

BV 2021 (€000)

453,080

564,256

601,314

638,373

Source: Edison Investment Research. Note: We assume money raised will be placed in cash and yield 0%.

Exhibit 6: Multiples with additional capital

New cash (€000s)

P/E (x)

ROE

P/BV (x)

P/BV (x)

CET1 FL*

CET1 FL*

 

2020

2021e

2021e

2020e

2021e

2021e

2022e

No capital hike

0

23.7

0.9%

1.0%

0.23

0.22

6.8%

+300bp capital

111,176

52.3

0.8%

0.8%

0.40

0.40

9.8%

+400bp capital

148,234

61.8

0.7%

0.8%

0.44

0.44

10.8%

+500bp capital

185,293

71.3

0.7%

0.7%

0.48

0.48

11.8%

Source: Edison Investment Research. Note: *FL = fully loaded.

Exhibit 7: Financial summary

Year end 31 December

€'000s

FY18

FY19

FY20e

FY21e

FY22e

INCOME STATEMENT

Net interest income

 

69,290

43,852

60,157

84,988

110,332

Net fees and commissions

 

6,956

6,540

14,967

21,155

29,068

Other operating income

 

51,741

21,214

5,600

4,800

4,800

Revenues

 

127,987

71,606

80,724

110,944

144,199

Cost

 

(89,192)

(70,043)

(70,593)

(71,501)

(72,564)

Pre-provision profit

 

38,795

1,563

10,131

39,443

71,635

Impairment charge for loan losses

 

(27,527)

(24,202)

(33,475)

(36,573)

(39,930)

Impairment other assets

 

(3,191)

(2,050)

(2,400)

(1,500)

(1,500)

Associates

 

(3,329)

1,042

1,200

1,300

1,500

Profit before tax

 

4,748

(23,647)

(24,544)

2,669

31,705

Taxation

 

(7,105)

28,645

24,594

1,611

191

Non-controlling interest

 

0

0

0

0

0

Preference dividend

 

0

0

0

0

0

Attributable income

 

(2,357)

4,998

50

4,280

31,896

Shares ranking m

 

461

461

461

461

461

EPS (€)

 

(0.01)

0.01

0.00

0.01

0.07

Underlying PBT

 

(25,038)

(23,647)

(24,544)

2,669

30,205

BALANCE SHEET

 

Cash and balances with central Bank

 

60,860

138,097

138,097

131,192

124,633

Due from Financial institutions

 

9,516

67,437

67,437

68,786

70,161

Financial assets at fair value

 

2,950

12,008

12,248

12,493

12,743

Financial assets available for sale

 

909,288

590,046

548,743

537,768

527,013

Investments held to maturity

 

0

0

0

0

0

Loans to customers

 

1,592,144

1,547,494

1,849,071

2,272,244

2,901,762

Associates

 

3,427

4,469

5,669

6,969

8,469

Property, plant and equipment

 

31,646

48,468

44,115

39,631

35,012

Investment property

 

57,862

58,340

58,923

59,513

60,108

Intangible assets

 

50,413

52,893

44,186

35,218

25,982

Deferred tax assets

 

420,357

449,734

438,734

426,200

413,666

Other assets

 

202,162

205,490

201,380

197,353

193,406

Total Assets

 

3,340,625

3,174,476

3,408,604

3,787,367

4,372,954

Deposits from financial institutions

 

424,683

262,456

255,000

210,000

220,000

Customer deposits

 

2,281,875

2,608,157

2,865,509

3,236,149

3,673,067

Defined benefit obligations

 

12,925

99,729

11,084

10,529

10,003

Other liabilities

 

40,449

15,050

78,197

134,586

249,028

Total Liabilities

 

2,759,932

2,985,392

3,209,789

3,591,264

4,152,098

Total Shareholder's Equity

 

490,896

448,750

448,800

453,080

484,976

Preference shares

 

0

0

0

0

0

Non-controlling interest

 

0

0

0

0

0

Total shareholders’ equity (BV)

 

490,896

448,750

448,800

453,080

484,976

CAPITAL

 

Common Equity tier 1 (transitional)

 

431,148

366,601

348,759

367,264

379,321

Total Capital

 

530,824

466,330

448,488

466,993

479,050

Risk weighted assets

 

3,204,638

3,222,484

3,705,857

4,113,501

4,689,391

CET1 ratio % (transitional)

 

13.5%

11.4%

9.4%

8.9%

8.1%

Total Capital ratio %

 

16.6%

14.5%

12.1%

11.4%

10.2%

CET1 ratio % (fully loaded)

 

8.9%

8.1%

6.8%

6.3%

6.3%

ASSET QUALITY

 

Neither past due nor impaired/ stage 1

 

710,127

738,764

923,455

1,292,837

1,809,972

Past due but not impaired/stage 2

 

379,012

238,917

322,538

387,046

503,159

Impaired/ stage 3

 

755,999

850,698

884,068

896,996

915,096

Gross loans

 

1,845,138

1,828,379

2,130,061

2,576,879

3,228,227

Impairment allowance

 

252,944

280,885

280,990

304,635

326,465

Non-performing exposures as %

 

41.0%

46.5%

41.5%

34.8%

28.3%

NPE cash coverage

 

33.5%

33.0%

31.8%

34.0%

35.7%

PROFITABILITY

 

Cost/Revenues

 

69.7%

97.8%

87.5%

64.4%

50.3%

Loan impairments % net loans

 

2.5%

2.5%

3.0%

2.5%

2.0%

Return on average equity

 

(0.4%)

1.1%

0.0%

0.9%

6.8%

Return on average tangible equity

 

(0.5%)

1.2%

0.0%

1.0%

7.3%

Book value per share (€)

1.06

0.97

0.97

0.98

1.05

Tangible equity per share (€)

 

0.95

0.86

0.88

0.91

1.00

Source: Attica Bank, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Attica Bank and prepared and issued by Edison, in consideration of a fee payable by Attica Bank. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Attica Bank and prepared and issued by Edison, in consideration of a fee payable by Attica Bank. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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