Sberbank Beats 1Q17 Profit View on Strong Interest Margin

Sberbank Beats 1Q17 Profit View on Strong Interest Margin

Despite posting a 32 % y-o-y rise in the fiscal 2017 first-quarter income, the stock of Sberbank Russia (OTCMKTS:SBRCY) has fallen about 7% to $11.28. Following the annexation of Crimea from Ukraine, Russia’s largest lender continues to face considerable protests in Ukraine. The sanctions against Russia also keep the stock under pressure. However, considering the impressive earnings and overall financial strength, we expect the stock to begin an uptrend soon.

During the March 2017 quarter, interest income declined to 565.6 billion Rubles, from 613 billion Rubles in the corresponding quarter of 2016. However, the interest expenses declined 62.3 billion Rubles y-o-y to 214.8 billion Rubles. That enabled the bank to post Q1 2017 net interest income of 336.6 billion Rubles, an increase of 11.1 billion Rubles from the last year.

Higher fees coupled with lower losses from Forex transactions enabled Sberbank to report 1Q17 operating income of 355.2 billion Rubles, compared with 293.7 billion Rubles in 1Q16.

Net profit in the recent quarter was 166.6 billion Rubles, up 40% from 117.7 billion Rubles in the year-ago quarter. The reported figures marginally exceeded analysts’ estimates of 159 billion Rubles. Net interest margin increased to 5.8% in Q1 2017, from 5.3% in Q1 2016. It was the third highest profit in the past five years.

The bank holds nearly one-third of total deposits in Russia. Thus, it is less dependent on the country’s central bank for financing needs. So, it can easily take the competition head on with its unmatched pricing power, and defend market share.

Due to sanctions on Russia, Sberbank is banned from accessing international capital markets. Still, the bank’s return on equity jumped 4% y-o-y to 23.1% in the first-quarter. Similarly, loan-loss provisions was 67.3 billion Rubles in the first-quarter of 2017, down 16.6 billion Rubles on y-o-y basis. That indicates an improvement in loan quality as Russia emerged from a recession. Thus, an increase in the interest margin, record profits, and recovery of the Russian economy is expected to keep the stock of Sberbank in a bullish orbit.

The stock has support at 11.0, as indicated in the chart below. The MACD is rising towards the zero line, while the money flow index is moving in the bullish zone. Thus, technically, an appreciation is possible in the stock price.

Sberbank - Technical Analysis - 8th June 2017

To capitalise on the impending uptrend, we wish to purchase a call option with a strike price of about $11.0. Furthermore, to minimise risk, we would look for a contract which expires in a week after the purchase.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

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