OTP Bank has announced that it signed a contract concerning an acquisition of 100% stake in Crnogorska Komercijalna Banka for EUR 105m. The price paid equals to the historic P/BV of 5.4x and P/E of 34.7x. On our estimates OTP Bank would not need to issue new shares to fund the acquisition of CKB, which is line with the earlier comments of OTP management. The price will be paid by the end of the 2006 as the deal is expected to be closed by that time.
The acquisition is relatively small and appears to offer a good fit within OTP Bank's regional expansion, strengthening its competitive position in former-Yugoslavia. Currently, the bank is the most dominant player of the Montenegrin banking sector, with a market share exceeding 44%, while its total assets reached EUR 303.7m at the end of 2005. The bank, with an original focus on the SME sector, serves both corporate and retail customers and is said as a dominant market player in all business lines. CKB had loans of EUR 163m, deposits of EUR 261m, equity of EUR 19.32m, and a net profit of EUR 3.03m, at the end of 2005. The bank also had a network of 33 branches and 288 employees.
Our view: We view this acquisition as fully-priced. However, given the possible aggressive business plan that could be announced for the CKB contribution to the OTP’s 2007-2010 management profit guidance, as it was done in case of previous acquisitions, and the relatively small size of the bank we would expect rather neutral reaction from the market.