ProCredit Holding — A solid start to 2024

ProCredit Holding (XETRA: PCZ)

Last close As at 19/06/2024

EUR9.74

0.08 (0.83%)

Market capitalisation

EUR574m

More on this equity

Research: Financials

ProCredit Holding — A solid start to 2024

ProCredit Holding (PCB) has delivered another strong set of results, posting Q124 net income of €33.5m (up 14% y-o-y), which translates into an annualised ROE of 13.4%. Earnings were supported by a sustained solid net interest margin (NIM; at 3.7% annualised vs 3.4% in Q123) and low cost of risk (2bp). Meanwhile, PCB reported a higher cost-income ratio (CIR, 61.7% in Q124 vs 59.7% in Q123) as it ramps up its new strategic agenda. In line with PCB’s dividend policy, the management board will propose at the AGM (on 4 June 2024) the payout of one-third of PCB’s FY23 profits, translating into a dividend per share of €0.64, which implies a healthy 6.4% dividend yield.

Milosz Papst

Written by

Milosz Papst

Director, Financials

Futuristic global business

Financials

ProCredit Holding

A solid start to 2024

Q124 results

Banks

21 May 2024

Price

€10.00

Market cap

€589m

Total assets (€bn) at end-March 2024

10.0

Shares in issue

58.9m

Free float

38.7%

Code

PCZ

Primary exchange

Frankfurt Prime Standard

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

14.4

35.1

71.8

Rel (local)

8.1

22.9

49.0

52-week high/low

€10.0

€5.9

Business description

Based in Germany, ProCredit Holding operates regional banks across Southeastern and Eastern Europe and Ecuador. The banks focus on micro, small and medium-sized enterprises and private individuals.

Next events

AGM

4 June 2024

H124 results

14 August 2024

Analyst

Milosz Papst

+44 (0)20 3077 5700

ProCredit Holding is a research client of Edison Investment Research Limited

ProCredit Holding (PCB) has delivered another strong set of results, posting Q124 net income of €33.5m (up 14% y-o-y), which translates into an annualised ROE of 13.4%. Earnings were supported by a sustained solid net interest margin (NIM; at 3.7% annualised vs 3.4% in Q123) and low cost of risk (2bp). Meanwhile, PCB reported a higher cost-income ratio (CIR, 61.7% in Q124 vs 59.7% in Q123) as it ramps up its new strategic agenda. In line with PCB’s dividend policy, the management board will propose at the AGM (on 4 June 2024) the payout of one-third of PCB’s FY23 profits, translating into a dividend per share of €0.64, which implies a healthy 6.4% dividend yield.

Year end

Net interest income (€m)

EPS*
(€)

DPS
(€)

P/BV
(x)

P/E*
(x)

ROE
(%)

Dividend yield (%)

12/22

264.6

0.28

0.00

0.64

35.7

1.9

N/A

12/23

337.2

1.92

0.64

0.56

5.2

12.2

6.4

12/24e

365.9

1.94

0.65

0.52

5.2

11.2

6.5

12/25e

391.6

1.97

0.66

0.49

5.1

10.6

6.6

Note: *EPS as reported by the company

FY24 management guidance maintained

Despite the very strong start of the year (including solid loan book and deposit growth of 3.0% and 2.8%, respectively), management has refrained from raising its FY24 guidance and reiterated its earlier expectations. It therefore continues to assume an FY24 return on equity of 10–12% (based on a cost of risk of up to 40bp), growth in loan portfolio at around 10% excluding fx, a cost-income ratio of around 63%, as well as a CET-1 ratio above 13%. We maintain our forecasts as well and expect an FY24 ROE of 11.2% on the back of a 10% loan book growth and a CIR of 63.5%.

Successful placement of green tier-2 bonds

Since the reporting date, PCB has strengthened its total capital ratio (TCR) by the successful placement of €125m green tier-2 (subordinated) bonds on 25 April 2024. The bonds bear a fixed coupon at 9.5%, mature in 2034 (with a call right in 2029) and were rated BB- by Fitch (PCB’s issuer rating of this agency is BBB). Management highlighted that the geographically diverse strong demand allowed PCB to upsize the issue from the originally assumed €100m. The placement was carried out under PCB’s green bond framework, which was subject to a second-party opinion from Sustainalytics. The bond issue (which, according to PCB, can finance more than €1bn of asset growth) resulted in a 2pp increase in the TCR to a pro-forma end-March 2024 figure of 17.7%.

Valuation: Offering close to 43% upside potential

We have reduced our fair value estimate slightly for PCB’s shares to €14.30 per share (compared to €14.70 previously) on the back of updated peer multiples. We retain our sustainable return on tangible equity assumption of 11% for now. Reflecting PCB’s targeted 13–14% profitability (see our recent outlook note for details) would bring our valuation to €16.90–18.20 per share.

High NIM continues to support PCB’s profitability

PCB delivered a healthy annualised Q124 ROE of 13.4% (slightly above the 13.3% in Q123), with both Southeastern Europe and Eastern Europe making good contributions with annualised ROE of 16.3% and 20.6%, respectively (partly offset by the -9.3% return in Ecuador). PCB’s profitability was assisted by continued strong NIM of 3.7% (vs 3.8% in Q423 and 3.4% in Q123) on the back of supportive volume effects and the positive impact from assets repricing (€15.8m), which more than offset liabilities repricing (€8.9m). The slight sequential NIM reduction came primarily from banks in Serbia (seasonal effect in Q423 and increased liability volume effects) and Ukraine (due to a lower base rate), while other local banks had a broadly stable NIM. Meanwhile, group net fee and commission income remained broadly stable year-on-year at €14.1m.

Exhibit 1: Q124 results highlights

€m, unless otherwise stated

Q124

Q123

y-o-y change

Net interest income

90.1

75.4

19.4%

Net interest margin (annualised)

3.7%

3.4%

26 bp

Expenses for loss allowances

0.3

1.9

-84%

Cost of risk (annualised, bp)

2

12

-10 bp

Net fee and commission income

14.1

14.0

0.6%

Pre-tax profit

40.7

35.9

13%

Net income

33.5

29.5

14%

ROE

13.4%

13.3%

8 bp

CIR

61.7%

59.7%

205 bp

CET-1 ratio (fully loaded)

14.3%*

14.1%

0.2 pp

Deposit to loan ratio

116.2%

104.3%

11.9 pp

Gross loan portfolio growth (q-o-q)

3.0%

-0.8%

3.8 pp

Customer deposits growth (q-o-q)

2.8%

0.6%

2.2 pp

Source: Company data. Note: *Updated for the recognition of Q124 profits based on the regulatory approval obtained on 6 May.

PCB’s loan book increased by 3.0% in Q124 and management highlighted good contribution from all segments, with most of the increase coming from SMEs (as investment appetite is picking up, especially in Western Balkans), but growth was also assisted by micro (12.8% sequential growth) and private clients (6.7%). The solid momentum was despite some further reduction in the loan book in Ukraine (by €42m or 8.4% vs end-2023) due to higher-than-expected repayments and early repayments (loan book growth excluding Ukraine was 4.0% in Q124). The Ukrainian loan book now accounts for 7% of PCB’s total loan portfolio (down from c 13% at end-2021).

PCB continues to attract significant deposit volumes, which grew by 2.8% (or by €200m) in Q124, with private client deposits accounting for 80% of growth (and increasing by more than 5%). As a result, PCB’s deposit-to-loan ratio stood at 116.2% at end-March 2024, up by 11.9pp y-o-y (slightly down from 116.5% at end-December 2023). The year-on-year deposit growth allowed PCB to reduce non-customer funds by €185m, supporting its NIM.

As a result, PCB’s operating income grew by 14.3% y-o-y to €107.2m in Q124. PCB’s cost-income ratio stood at 61.7% in Q124 vs 59.7% in Q123, as personnel and administrative expenses (most notably IT, marketing and infrastructure expenses) grew by €10.2m (or 18%) y-o-y to support PCB’s updated strategy (see our recent outlook note for details). It is worth highlighting that the average salary across the group increased by only 3% y-o-y in Q124 (vs 8% y-o-y in 2023), despite the 14% y-o-y increase in headcount.

The company’s profitability was further assisted by a very low cost of risk of €0.3m in Q124 (or 2bp annualised), as €1.4m of provisions for credit risk (which accounts for the growth in PCB’s loan book in the quarter) and €2.2m of management overlays booked for Ukraine was largely offset by recoveries of written off loans (€3.3m). We note that PCB maintained a high level of management overlays at €64.4m as at end-March 2024, of which €25.5m were attributable to Ukraine. The share of stage three loans declined slightly to 2.6% at end-March 2024 from 2.7% at end-December 2023 (3.2% at end-March 2023).

PCB’s fully loaded CET-1 ratio stood at 14.3%, while its TCR was 15.7% at end-March 2024. As discussed above, this was further supported by the green tier-2 bond issue, which added 2pp to the TCR. Here, we note that c €30m of PCB’s €139m subordinated debt outstanding at end-2023 was classified as short term (ie with a maturity of up to 12 months) and PCB’s management will decide on its refinancing on a case-by-case basis.

Making steady progress on its ESG agenda

PCB’s green loan portfolio reached almost €1.3bn (c 20% of total loan book) at end-March 2024, increasing by 1.0% sequentially after growing at an FY18–23 CAGR of 13% (see Exhibit 2). The renewable energy projects financed by PCB translated into a 191.9k tonne reduction of carbon dioxide emissions in 2023. Management targets a green loan book of at least 25% of total loan portfolio in the medium term. PCB also measures its ESG impact through the number of business clients and the number of jobs supported through its business loan clients, which in 2023 stood at 72,477 and 193,344, respectively. The latter includes 42% and 7% of female and youth employment, respectively.

Exhibit 2: Evolution of PCB’s green loan book

Source: Company data

PCB recently highlighted that its near-term targets were validated by the Science Based Targets initiative as science-based in accordance with the Paris Climate Agreement. PCB committed to reducing the group’s absolute Scope 1 and Scope 2 greenhouse gas emissions by 42% by 2030 compared to 2022. It plans to achieve this mainly through increasing the share of renewable energy providers among its suppliers (we also note it recently commissioned its own 3 MW photovoltaic park in Kosovo), as well as increasing the electric cars fleet (electric and hybrid plug-in cars made up 61% of its fleet at end-2023) and introducing energy efficiency measures at its premises and in its processes. It reduced group energy consumption and indoor water consumption per employee by 7.4% and 7.8% in 2023, respectively, and six of its premises are certified by EDGE. The company also noted that its validated Scope 3 Portfolio Targets cover 57% of its overall investment and lending by total assets as of 2022 (Scope 3 emissions represent over 95% of its total emissions). PCB’s Scope 3 target is to engage with SMEs responsible for 28% of the group’s portfolio emissions (with an emphasis on agriculture and manufacturing sectors) to encourage them to set their own science-based targets by 2027.

PCB’s social performance is also measured by its employee diversity (54% of female representation in the middle management in 2023, up from 48% in 2022), as well as hours of training per employee (114 in 2023 vs 139 in 2022) and annual investment in employee training (€9.4m in 2023 vs €7.4m in 2022). We also note the low turnover rate at group level of 8% in 2023 (down from 11% in 2022).

Exhibit 3: Financial summary

Year ending 31 December, €000s

2019

2020

2021

2022

2023

2024e

2025e

2026e

2027e

2028e

Income statement

 

 

 

 

 

 

 

 

 

Net interest income

194,533

201,561

222,021

264,634

337,224

365,945

391,639

432,587

477,867

529,361

Net fee and commission income

51,972

47,380

50,855

54,731

57,525

60,300

65,164

69,472

74,165

79,279

Operating income

249,275

252,114

281,881

339,848

412,506

442,896

475,119

522,401

574,626

633,688

Operating expenses

175,737

171,430

180,859

217,428

246,979

281,034

312,782

335,939

358,942

377,394

Loss allowances

(3,327)

28,600

6,490

104,573

15,513

25,889

23,798

26,497

29,765

33,102

PBT

76,865

52,084

94,532

17,847

150,015

135,973

138,538

159,965

185,918

223,191

Net profit after tax

54,304

41,395

79,641

16,497

113,372

114,156

116,210

134,641

156,584

188,328

Reported EPS (€)

0.89

0.70

1.35

0.28

1.92

1.94

1.97

2.29

2.66

3.20

DPS (€)

0.00

0.53

0.00

0.00

0.64

0.65

0.66

0.76

0.89

1.07

Balance sheet

Cash and balances at central banks

1,081,723

1,405,349

1,545,523

1,939,681

2,347,617

2,668,376

2,821,521

3,123,343

3,529,375

3,970,793

Loans and advances to banks

320,737

236,519

252,649

280,453

372,141

372,141

372,141

372,141

372,141

372,141

Investment securities

378,281

336,476

410,400

480,168

750,542

750,542

750,542

750,542

750,542

750,542

Loans and advances to customers

4,690,961

5,131,582

5,792,966

5,892,796

6,029,715

6,643,442

7,385,232

8,243,839

9,189,951

10,246,999

Property, plant and equipment and investment properties

138,407

140,744

137,536

133,703

137,423

137,423

137,423

137,423

137,423

137,423

Intangible assets

20,345

19,316

18,411

17,993

22,732

22,732

22,732

22,732

22,732

22,732

Other assets

67,106

59,315

58,416

81,330

88,798

93,444

88,798

93,444

88,798

93,444

Total assets

6,697,560

7,329,301

8,215,901

8,826,124

9,748,968

10,688,100

11,578,389

12,743,464

14,090,962

15,594,074

Liabilities to banks

1,079,271

1,235,763

1,313,666

1,318,647

1,127,680

1,048,742

1,111,667

1,067,200

1,045,856

993,563

Liabilities to customers

4,333,436

4,898,897

5,542,251

6,289,511

7,254,236

8,070,940

8,820,147

9,933,784

11,190,923

12,610,193

Debt securities

343,727

266,858

353,221

191,988

147,088

147,088

147,088

147,088

147,088

147,088

Subordinated debt

87,198

84,974

87,390

93,597

139,269

264,269

264,269

264,269

264,269

264,269

Other liabilities

50,436

63,080

63,059

62,946

96,906

96,906

96,906

96,906

96,906

96,906

Total liabilities

5,894,068

6,549,573

7,359,587

7,956,689

8,765,179

9,627,946

10,440,077

11,509,247

12,745,042

14,112,020

Total shareholders' equity

803,492

779,728

856,314

869,435

983,789

1,060,154

1,138,312

1,234,216

1,345,920

1,482,054

BVPS

13.5

13.2

14.5

14.8

16.7

18.0

19.3

21.0

22.9

25.2

TNAV per share

13.1

12.9

14.2

14.5

16.3

17.6

18.9

20.6

22.5

24.8

Ratios

 

 

 

 

 

 

 

 

 

NIM

3.10%

2.90%

2.90%

3.11%

3.63%

3.58%

3.52%

3.56%

3.56%

3.57%

Costs/Income

70.5%

68.0%

64.2%

64.0%

59.9%

63.5%

65.8%

64.3%

62.5%

59.6%

ROE

6.9%

5.3%

9.7%

1.9%

12.2%

11.2%

10.6%

11.3%

12.1%

13.3%

CET1 Ratio

14.1%

13.3%

14.1%

13.5%

14.3%

14.3%

14.4%

14.5%

14.5%

14.8%

Tier 1 ratio

14.1%

13.3%

14.1%

13.5%

14.3%

14.3%

14.4%

14.5%

14.5%

14.8%

Capital adequacy ratio

15.7%

14.7%

15.3%

14.3%

15.8%

17.6%

17.5%

17.3%

17.1%

17.1%

Payout ratio (%)

33.3%*

33.3%*

0.0%**

0.0%**

33.3%

33.3%

33.3%

33.3%

33.3%

33.3%

Customer loans/total assets

71.6%

71.7%

72.1%

69.1%

63.9%

64.1%

65.5%

66.3%

66.8%

67.2%

Deposits/loans

90.3%

93.2%

93.5%

103.0%

116.5%

117.9%

116.3%

117.6%

119.0%

120.4%

Source: PCB data, Edison Investment Research. Note: *In 2021, PCB distributed one-third of the accumulated profits from 2019 and 2020. **In light of the war in Ukraine and the risk of a broader escalation of the conflict, which could have adversely affected PCB’s business in the entire region, no dividends were paid in 2022 and 2023, contrary to PCB’s dividend policy of distributing one-third of consolidated profits.


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This report has been commissioned by ProCredit Holding and prepared and issued by Edison, in consideration of a fee payable by ProCredit Holding. Edison Investment Research standard fees are £60,000 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.

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General disclaimer and copyright

This report has been commissioned by ProCredit Holding and prepared and issued by Edison, in consideration of a fee payable by ProCredit Holding. Edison Investment Research standard fees are £60,000 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.

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Research: Consumer

Britvic — Buoyant volumes in H124

Britvic’s interim results showcased a positive first half of FY24, with strong revenue growth across core brands and geographies. This was underpinned by a robust increase in volumes, reflecting product innovation and growth across its strategic pillars. Positive price/mix helped enable a 70bp improvement in margins. The enhanced profitability permitted a 16% increase in the interim dividend. Britvic continues to make strategic progress against the growth pillars of family favourite brands, Brazil and new growth areas. Management remains confident in the outlook, particularly with several key consumer activation events upcoming in the critical summer trading period. The company announced its third share buyback programme of up to £75m over the next 12 months.

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Aqua Libra, London May 9th 2022Photographs Tim Bishop/Britvic PLC

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