Wednesday, June 27, 2012

NBP: A Cyclical Play

   With adequate coverage ratio, stagnant NPL ratio and highest dividend yield amongst top tier banks, we reinitiate our coverage on National bank of Pakistan (NBP) with a ‘Buy’

   Although NPL coverage standing at 74% is lower to the tune of 5% provided by comparable peers, we believe it’s adequate enough and the bank will continue maintain this level. Hence, we deduce that concerns over asset quality of the banks have been overplayed

   Recently introduced mandatory requirement of a minimum deposit rate of 6%, the cost of deposits are bound to increase

   The cost to income ratio which is a measure of efficiency for the bank stands at 56% - although measures to control costs such as up gradation of IT infrastructure and introduction of mobile and internet banking facilities are on cards, a complete implementation of the same would take its due time

   The bank fundamentals demand a PKR50/share target price for the stock, offering 16% upside and above average dividend yield of 17%


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