UniCredit Bank Reiterates its SELL Rating on Banco Popular

October 11 00:00 2011

LONDON, October11 (FinanaceEnquiry.com) – Analysts at UniCredit Equity Research maintain their SELL rating on the shares of Banco Popular (POP.MC). The target price is set to €3.50.

Analysts at UniCredit Research, in a research note published this morning, mention that Banco Popular is overpaying for the Pastor acquisition given the fact that potential cleanup of its loan books will be required. The capital positioning of Popular seems to be unaffected by a provision of € 1 billion that Pastor needs for provisioning related to its developer and real estate exposure after the  acquisition, the analysts say.

The acquisition deems to be appropriate both geographically and in terms of business mix. However, it’s not the acquisition but Popular’s own real estate & developer exposure which induces analyst to maintain a sell opinion on its stock. The analysts have estimated a need of further €2.4 billion of provision or 154bp of capital. Following are the key highlights of the report.

  • Popular is offering a all-share offer worth €1.3 billion for 100% Pastor.
  • Analyst believes POP is overestimating the synergies, the company estimated a NPV of €799 million whereas analyst predicted a NPV of €454 million.
  • Upon acquisition, POP can cover Pastor’s real estate & developer exposure computed to be € 1 billion but writing down its existing exposure seems bleak.

After adjusting 1H’11 results with acquisition, Popular will be trading on 0.87x P/TBV which appears to be expensive as compared to other European banks in the sector, the analysts mention. Hence, making room for potential downward pressure and reiterating the sell opinion on the shares of Banco Popular.

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