Aval reports disappointing 2011 IFRS results

Raiffeisen Bank Aval (BAVL UK) released its 2011 IFRS financials yesterday, reporting net income of USD 75 mln (up from USD 11 mln in 2010) for a ROE of 7.9%. The bank’s net interest income increased 10% yoy to USD 486 mln, however profit  before provisions was 19% yoy lower at USD 232 mln on losses from investments into securities. The bank’s Cost/Income ratio deteriorated 6 pp yoy to 63%. Asset quality remained little changed at Aval last year: the share of NPLs was 34.8% vs. 33.5% a year earlier (based on data from Raiffeisen Bank International). LLR/Gross loans ratio stood at 22.9% at end-2011, implying NPL coverage of 66%.

Olena Zuikova: The 19% yoy decline in profit before provisions was a negative surprise, even though it can be explained by one-offs. Loan quality also remains weak with virtually no progress on that front. The bank nearly halved its provisioning charges in 2011, but we think the potential for further reduction in loan loss provisions in 2012 is limited. We project Aval’s profitability to improve only marginally this year for a ROE of about 10%. The stock currently trades at 2012E P/B of 0.4x, or 50%+ discount to regional peers. We do not see any short-term catalysts capable of narrowing the discount, so we maintain our HOLD recommendation on Aval.