ProCredit Holding — Impact of war in Ukraine

ProCredit Holding (XETRA: PCZ)

Last close As at 22/02/2024

EUR7.46

0.14 (1.91%)

Market capitalisation

EUR440m

More on this equity

Research: Financials

ProCredit Holding — Impact of war in Ukraine

In light of the recent developments in Ukraine, we have temporarily suspended our forecasts and fair value estimate for ProCredit Holding (PCB) until further notice. The conflict is likely to have a significant impact on PCB’s operations in Ukraine (gross loan book of €732m or c 13% of the total loan portfolio at 30 September 2021). Potential effects are likely to include 1) a spike in default rates (although this could be mitigated by credit moratoria), 2) a decline in interest and fee income, 3) a collapse in lending volumes, and 4) a negative FX impact from the depreciating Ukrainian Hryvnia (although we note that PCB normally matches the foreign currency exposure of its assets and liabilities). The local banking system is now operating under Ukraine’s martial law (introduced on 24 February), which should help to mitigate the short-term impact. We note that PCB has no exposure to Russia and thus the sanctions imposed on Russia will have no meaningful impact on PCB’s business.

Milosz Papst

Written by

Milosz Papst

Director, Financials

Financials

ProCredit Holding

Impact of war in Ukraine

Temporary suspension of forecasts

Banks

1 March 2022

Price

€4.63

Market cap

€273m

Total assets (€bn) at end September 2021

7.9

Shares in issue

58.9m

Free float

35.7%

Code

PCZ

Primary exchange

Frankfurt Prime Standard

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(36.4)

(41.8)

(43.5)

Rel (local)

(32.0)

(39.3)

(46.2)

52-week high/low

€9.26

€4.63

Business description

ProCredit 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.

Next events

FY21 results

24 March 2022

Jefferies Pan-European Mid-cap conference

29–30 March 2022

Analysts

Milosz Papst

+44 (0)20 3077 5700

Anna Dziadkowiec

+44 (0)20 3077 5700

ProCredit Holding is a research client of Edison Investment Research Limited

In light of the recent developments in Ukraine, we have temporarily suspended our forecasts and fair value estimate for ProCredit Holding (PCB) until further notice. The conflict is likely to have a significant impact on PCB’s operations in Ukraine (gross loan book of 732m or c 13% of the total loan portfolio at 30 September 2021). Potential effects are likely to include 1) a spike in default rates (although this could be mitigated by credit moratoria), 2) a decline in interest and fee income, 3) a collapse in lending volumes, and 4) a negative FX impact from the depreciating Ukrainian Hryvnia (although we note that PCB normally matches the foreign currency exposure of its assets and liabilities). The local banking system is now operating under Ukraine’s martial law (introduced on 24 February), which should help to mitigate the short-term impact. We note that PCB has no exposure to Russia and thus the sanctions imposed on Russia will have no meaningful impact on PCB’s business.

Year end

Net interest income (€m)

EPS*
(€)

DPS
(€)

P/BV
(x)

P/E
(x)

ROE
(%)

Yield
(%)

12/19

194.5

0.89

0.00

0.3

5.2

6.9

N/A

12/20

201.6

0.70

0.53

0.3

6.6

5.3

11.4

Note: ProCredit Holding. Note: *From total operations.

No new capital needed even in a worst-case scenario

We calculate that PCB Ukraine had total equity of c 123m at 30 September 2021. This compares with the group’s CET-1 capital and total regulatory capital at 30 September 2021 of c 772m and c 840.6m respectively. Moreover, based on our conversation with the management, we understand that the risk weighted assets (RWA) of PCB Ukraine are around €850m (vs total group at c €5.6bn at end-September 2021). Consequently, we estimate that even in a hypothetical worst-case scenario of a defaulting PCB Ukraine, the capital ratios of PCB group would change only marginally (as the decline in regulatory capital would be offset by declining RWA) and remain well ahead of its regulatory requirements. The group’s CET-1 ratio and capital adequacy ratio was 13.8% and 15.0% at end-September 2021, respectively, versus the regulatory requirement of 8.2% and 12.6%, respectively.

Potential write-down of PCB Ukraine already priced in

For illustrative purposes, we estimate that even a complete write-down of the equity in PCB Ukraine would reduce our previous FY21 forecast of PCB’s tangible book value from 14.2 per share to 12.7. While this is a considerable decline, we note that PCB’s share price is currently well below book value per share at c 4.63 (although this may also discount geopolitical risks around Georgia and Moldova). That said, we note that in 9M21, PCB’s Eastern Europe segment (where 57% of the loan book is in Ukraine versus 30% in Georgia and 13% in Moldova) recorded net interest income of 51m (32% of group) and net profit of 28m (vs PCB group at €62m).

Ukraine’s banking system under martial law

PCB has extensive experience navigating in political and military unrest. For instance, it was one of the last banks to stay open in several countries during the global financial crisis of 2008/09 and the military conflict in Georgia in 2008, according to the company. However, Russia’s invasion of Ukraine is hardly comparable with any of the previous conflicts in the region. The Ukrainian banking system is operating under martial law based on a resolution implemented on 24 February 2022. Consequently, Ukraine’s central bank (NBU) will grant unlimited and unsecured loans to banks with a maturity of up to one year (and an option to extend to another year). Moreover, among other things, the official Ukrainian Hryvnia exchange rate has been fixed and a moratorium on cross-border payments has been introduced. Experts from the International Monetary Fund view positively all the measures taken by NBU and are in discussions with the NBU on possible support measures, including assistance under the Rapid Financing Instrument.

PCB Ukraine has seven branches, of which three are in Kyiv (currently closed), and five 24/7 self-service branches (which are still open). PCB’s successful digitalisation and physical branch reduction strategy (see our June 2020 initiation note for details), should help it to operate as normally as possible.

Exhibit 1: Financial summary

Year ending December (€000s)

FY18

FY19

FY20

Income Statement

 

 

 

Net interest income

186,235

194,533

201,561

Net fee and commission income

52,172

51,972

47,380

Loss allowances (-)

(4,714)

(3,327)

28,600

Operating income

245,394

252,603

223,514

Operating expenses

167,866

175,737

171,430

PBT

77,528

76,866

52,085

Net profit after tax

54,479

54,305

41,396

Reported EPS (€)

0.90

0.89

0.70

DPS (€)

0.30

0.00

0.53

Balance sheet

 

 

 

Cash and balances at Central Banks

963,714

1,081,723

1,405,349

Loans and advances to banks

211,592

320,737

236,519

Investment securities

297,308

378,281

336,476

Loans and advances to customers

4,267,829

4,690,961

5,131,582

Property, plant and equipment and investment properties

130,153

138,407

140,744

Intangible assets

22,191

20,345

19,316

Other assets

73,396

67,106

59,315

Total assets

5,966,184

6,697,560

7,329,301

Liabilities to banks

1,014,182

1,079,271

1,235,763

Liabilities to customers

3,825,938

4,333,436

4,898,897

Debt securities

206,212

343,727

266,858

Subordinated debt

143,140

87,198

84,974

Other liabilities

33,076

50,436

63,080

Total liabilities

5,222,549

5,894,068

6,549,573

Total shareholders' equity

743,634

803,492

779,728

BVPS

12.5

13.5

13.2

TNAV per share

12.1

13.1

12.9

Ratios

 

 

 

NIM

3.30%

3.10%

2.90%

Costs/income

69.7%

70.5%

68.0%

ROAE

7.6%

6.9%

5.3%

CET1 ratio

14.4%

14.1%

13.3%

Tier 1 ratio

14.4%

14.1%

13.3%

Capital adequacy ratio

17.2%

15.7%

14.7%

Payout ratio (%)

33.3%

0.0%

33.3%

Customer loans/total assets

73.6%

71.6%

71.7%

Loans/deposits

114.8%

110.7%

107.3%

Source: Company data


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.

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Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

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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

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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

1185 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

1185 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 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.

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 2022 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

1185 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

1185 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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