According to PAP interview with the CEO of BRE Bank Slawomir Lachowski, the bank plans to pay a dividend out of 2006 and 2007 net profit. The CEO has also reiterated that the bank will present, after 3Q06 results, its new 2006 full-year profit target, as it is almost certain that the current one is going to be exceeded.
Our view: We do not expect those statements to surprise the market as the management had already declared that the bank is likely to exceed its full-year pre-tax profit target of PLN 380m and indicated that analyst estimates in the range of PLN 440m were realistic. We would agree that the bank is on track to meet this higher pre-tax objective. However, we believe the consensus expectation (source: Multex) for 21.5% earnings growth in 2007 fails to take into account the potential headwind from rising provisioning requirements off of a low base in 2006. BRE Bank has been also considering the possibility of a dividend payment in 2007, for the first time in 4 years, but we see no reason for enthusiasm. With the weakest core capital ratio in our CEE coverage universe of an estimated 5.8% at the end of June 2006 and a comparatively low capacity to generate new capital internally, in excess of the amount required to support loan growth, a dividend payment well below average is the best investors should expect. We reiterate our Sell rating on the stock, with fair value of PLN 157.7 per share.