Monday, September 18, 2017

A Current AIM International Fund Holding: Sberbank (SBRCY) by Adam Hamilton. "Zdravstvuj Comrade, Sberbank Remains Russia's Largest Bank"

Sberbank (SBRCY, $14.01): “Sberbank is Ready to Bear Down”
By: Adam Hamilton, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Sberbank Russia (SBRCY) provides banking services to financial institutions, corporate institutional clients, small businesses, and retail individual clients. The bank provides solutions to over 137 million retail clients and over 1.1 million corporate clients in 22 countries.

• Sberbank continues to dominate the Russian financial sector; as the market leader, it accounts for 40.1% in retail loans, 31.7% in corporate loans, and 54.6% in mortgage loans.

• Management has indicated that it will continue to invest in ways in which customers can control their accounts remotely to improve customer efficiency through online banking channels.

Key points: Loan portfolio growth has been an accelerator of Sberbank’s continued success. Corporate loans have grown 5.4% YOY and retail loans grew 3.1% YOY. Management indicates they expect this trend to continue particularly in the mortgage segment where they account for over fifty percent of mortgage loans. As the economy continues to strengthen and interest rates decrease, the loan portfolio has immense potential as both corporate and retail clients will be in demand for loans.

A key priority of management this year is to improve cost efficiency, which has been instrumental in continuing to produce profitability. The cost efficiency ratio is calculated to be at 33.5%, well below the 38.5% at this same time last year.

Sberbank has a healthy capital base which maintains the capital adequacy needed for the bank, which enables them to support growth and continue to strengthen its capital base. This stemmed and resulted in a total capital ratio of 16.7% and core equity tier 1 capital ratio of 12.3%, respectively, as compared to 12.6%, and 8.9%, respectively last year. Both the ratios were well above the minimum requirement of 8% for Russian banks.

Sberbank continues to develop unique partnerships in order to enhance its business units. In June, Sberbank formed a partnership with Monotown Development Foundation. This partnership was very strategic because it now with the help of Monotown, Sberbank looks to provide more lending to small and medium size enterprises in small towns to create jobs and bring investment opportunities to foster growth in quality of life for its residents. This also helps on the retail banking side, with opportunities to attract a new pool of customers. Another huge deal they made was with RVC to innovate modern banking solutions for clients. This partnership focuses on the exchange of analytical information about new technologies and innovative activities, mostly gearing towards online banking channels.

What has the stock done lately?
Since quarter 2 earnings release, SBRCY has been up 45% after seeing lots of short-term volatility throughout the year. The market continues to undervalue SBRCY and if management continues to prioritize how they are doing now, the stock should continue to be on an upswing over the next year.

Past Year Performance: SBRCY has had a rocky year; however, behind management’s guidance they have rebounded. With the increase of growth organically and inorganically the company’s strategies are geared to perform and produce financial strength in the long term.

Source: FactSet

My Takeaway
The stock is now currently trading at $.14.01 and its outlook shows numerous room for improvement. As the economy strengthens and interest rates decrease, the demand for loans will increase as well, which will drive SBRCY’s growth. I recommend that the AIM international portfolio hold on to Sberbank as of September 2017.

Source: FactSet