According to an interview on Reuters with Jacek Ksen, the CEO of BZ WBK, the bank’s 2006 pre-tax profit will exceed PLN 1bn. The main drivers were said to have been strong performance of investment banking, especially the results of Arka investment fund and brokerage house, as well as a strong pick up in lending, particularly in the retail segment.
Separately, the CEO has stated that, from the beginning of 2007, the company will focus on a branch expansion strategy, with 100 outlets to be opened in the next 2-3 years, and 100 pure retail franchise outlets. While Ksen has stated that the franchise network would reach some 100 for now, the timeframe has not been specified, as this project is reported to be in the initial stage of implementation.
Our view: We expect a pre-tax profit of PLN 1,066m in 2006 and net income of PLN 753.3m (PLN 159.9m in 4Q06), which is in line with the market consensus of PLN 758m (according to Multex), and therefore we believe that an optimistic scenario has already been priced in, especially given that the stock is up 19.9% in the last month.
We believe that the expansion plans of BZ WBK are in line with previously stated targets to open 100 “minibank” partner units and 30 regular branches by the end of 2007 and therefore we do not expect these comments to have much of a trading impact. Overall, we maintain our view of BZ WBK as a late mover in terms of network expansion and view this as a defensive move, in response to the expansion of distribution underway at the bank's competitors. After years of restrained investment and cost cutting, the pace of cost growth at BZ WBK is therefore seen picking-up materially this year and next.