On Friday, Patria released a new report on Ceska sporitelna, in which we downgraded our key long-term recommendation for the stock from buy to accumulate. The stock’s recent gains and the narrowing to 4% of the discount to our CZK 283 per-share target price are the main reasons for the downgrade. Our short-term recommendation remains hold. Despite the reduced upside potential, Ceska sporitelna stock remains appealing because of its defensive characteristics, both in terms of medium-term business performance predictability and in terms of stock volatility. In light of the better-than-expected H1 results, we have moderately raised our full-year 2001 projections. We forecast 2001 net income to reach CZK 1.59 bil. (vs. previous CZK 1.48 bil.), resulting in ROE of 6.8% (previously 6.3%). Our 2002 net profit forecast remains largely unchanged, at CZK 4.7 bil (ROE 17.6%). Given the reported and expected loan portfolio changes and our loan development projections, we expect the overall share of non-performing loans in CS’s loan book to fall from 27% in June 2001 to 22% at year-end 2001 and 15% in 2002.
(Ondrej Datka)