By:
Adam Hamilton, AIM Student at Marquette University
Summary
• 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.
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
