Uralsib - Russia Equity Research - Vozrozhdenie - Probably Last Sign of Weakness - Aug 13, 2010.
1H10 IFRS preview
Still pressured by taxes, but top line set to improve. Vozrozhdenie bank (VZRZ - BUY) is to release its 1H10 IFRS results on 18 August, kicking off Russian banks' 1H10 reporting season. We expect mixed results, with net income down 71% YoY to RUB186 mln ($6.2 mln) in 1H10 and down 8% QoQ to RUB89 mln ($2.9 mln) in 2Q10. While the bottom line is set to remain under pressure due to the still-high effective tax rate and opex growth, the top line is likely to rise. We expect total operating income to rise 8% QoQ to RUB2.5 bln ($83 mln) in 2Q10 as a result of almost flat NII and F&C income growth. We believe that expectedly weak results are priced in, and that management's 2H10 outlook during the conference call will be of greater interest.
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Buying opportunity remains. Despite gaining 22% since the beginning of July, the stock remains the main laggard in the sector, down 14% YTD. With weakness in the results already priced in, the stock is still undervalued, and we see upside of about 37%. Trading at 2011E P/BV of 1.1, Vozrozhdenie's shares still present a buying opportunity based on expectations of a brighter 2H10, with lending growth, NIM stabilization, and a lower effective tax rate. The management's 2010 net income guidance of RUB500 mln ($17 mln) is likely to be exceeded, and the outlook may improve. We retain our Buy recommendation and target price of $46/share.
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