This note is about investing, not trading or event-driven ideas. We believe our OI rated stocks will outperform the market on a risk-adjusted basis in the next 12-18 months. We recommend you own OPAP, Jumbo, PPC, Alpha Bank and ADMIE. We downgrade OTE given it is trading at our target price. We assume the pandemic will be less of a risk; we consider the end of free money and elevated costs and reiterate cash flow conversion as our #1 criterion.

What’s new? Alpha Bank was the last GR bank to report Q3 results yesterday. General picture: Banks are doing a good job with NPEs, which are going down (securitized) fast, while new NPEs are negligible. Normalizing CoR drove annualized pre-tax RoTE at 8%. However, a good part of pre-tax income reflects NPE and TLTRO income, to go missing in 2022. Loan balances are not moving despite gross disbursements (banks blame repayments) and DTA weight on TBV and CET1 continues to look bad. The recent Covid-Omicron-variant correction means banks are now trading 0.44x TBV 2022 with Eurobank (0.60x) and Piraeus (0.31x) standing out. Eurobank thanks to foreign earnings contribution and Piraeus due to weak CET1 (in our view). Banks insist on reinstating dividends. We consider this quite tricky, given the large amounts of DTA and state guarantees. New loans remains the real catalyst, in our view.

Going through the numbers, we reach the same conclusion as for Piraeus and NBG. Greek banks have a challenging task to replace NPE and TLTRO income via new loans and higher fees; and together with normalized CoR move to high-single digit RoTE (as per their guidance). On our calculations, Alpha Q2 NPE & TLTRO Income accounted for 38%/66% of clean NII/PPP against 26%/56% for NBG and 44%/61% for Piraeus. These items will be -gradually- lost going forward, which explains the lower FY 2021 guidance compared to the H1 run rate.

The next time you feel like mocking equity analysts on the ambiguous and/or arbitrary valuation assumptions backing their stock recommendations, do yourself a favor and go through the equity valuation of Cairo Mezz (CM) and Phoenix Vega Mezz (PVM) performed by Big 4 accounting/consulting firms. In the context of NPE securitizations, Eurobank and Piraeus Bank (respectively) established entities with the objective to hold mezzanine and junior notes that were not sold to third parties; they distributed the shares of these entities to their shareholders for free; and they floated them into the Greek stock market. Following PVM’s recent floating, investors asked our opinion about these entities and what we believe their worth is. Our view is they are not worth much (if anything at all). Investors should treat them as highly speculative trades. CM trades 0.64x TBV while PVM trades 0.82x TBV; the former at par with Eurobank’s own P/TBV; the latter at a huge premium to Piraeus P/TBV. We find this simply inconceivable.

We have set up a Scorecard for Greek Banks. Placed side-by-side, you can see which bank scores good or bad in P&L items; balance sheet; asset quality and capital. We are also showing their theoretical valuation based on a) their own RoTE 2022 guidance and b) our own RoTE estimates.