Sandor Csanyi, the CEO of OTP Bank, has reiterated, at the AGM held on Friday that the bank may buy two to three small regional Russian banks in next 18 months. The CEO has maintained 2007 year as dedicated for integration of existing operations. However, the CEO stated that OTP will seek new acquisition targets in Eastern Europe and Turkey from 2008, while beyond 2010, the bank could also consider Asia. Sandor Csanyi reiterated that the bank would not issue new shares to finance any acquisition. The CEO stated that in the earlier stage it was not worth acquiring a bank for more than 2/3x BV, but now he would consider looking at targets of even 5 to 6x BV.
Our view: As OTP Bank has recently reiterated its profit targets, aiming to increase pre-tax profit (in €-terms) by 21% (to €1.0bn) in 2007 and at a 3-year CAGR of 27% to (€ 2.0bn) over the period from 2007 to 2010. The targets for 2010 are based on the bank’s current structure, though management has expressed a willingness to pursue additional acquisitions, specifically referring to Russia and Serbia as potential markets. Management has identified sources of additional capital including: i) dividend payments potentially to be withheld (€ 480m), ii) additional subordinated debt (€ 800m), iii) capital release as a result of regulatory change (€ 265m), which could help fund acquisitions without resort to raising new equity capital. We expect the news to have a neutral impact on the stock trading.