Last week, the regional equity market witnessed an IPO of another bank – Addiko Bank. The IPO was conducted at EUR 16 per share, putting it at a P/B of 0.36 and an adjusted P/E of 10.1.   

During the offering, Addiko’s owners, Advent and the European Bank for Reconstruction and Development (EBRD) sold 55% stake in the bank at EUR 16 per share, which was below the initially priced range of EUR 19-23 per share. The mentioned price puts Addiko at a P/B of 0.36 and an adjusted P/E of 10.1.   

Addiko was listed on the prime market of Vienna Stock Exchange and on its first day of trading in Vienna, on Friday, the share opened at EUR 17.70 per share. Since then, the share price has observed a slight decrease, closing yesterday at EUR 16.7 per share.

When comparing Addiko to their regional peers, one can observe that the company is traded at a significantly lower P/B than the median. However, it is important to note that the lower P/B partially reflects a different (riskier) business model compared to their peers. The company positions themselves as a specialist consumer and SME banking group with a focus on growing its consumer business and SME lending activities as well as payment services, offering unsecured personal loan products for consumers and working capital loans for its SME customers funded largely by retail deposits. Such a business model is usually reflected with a relatively high net interest margin (NIM). This is also true for Addiko, whose 60% of net banking income comes from the consumer segment which has a NIM of 6.1%. Retail segment as a whole accounts for 70.4% of the company’s net banking income with a NIM of 4.4%. On a group level, Addiko has an adjusted NIM of 2.8%. On the other hand, it is important to note that a business model focused on retail and SME customers might also bring higher NPL ratio and higher cost of risk (especially in a case of a market downturn).   

It is also noteworthy that the low P/B also reflects the uncertainty related to the future operations of the company, whose realization of the expected growth is yet to be seen.

About Addiko

Addiko is an international banking group headquartered in Austria, operating through six banks with its core business in Croatia, Slovenia, Bosnia & Herzegovina, Serbia and Montenegro. All together, Addiko Group provides services to around 0.86m clients.

When observing each of their markets by Group assets (EUR 6.2bn), the Croatian market accounts for 40%, followed by the Slovenian market (26%). Next come Serbian and B&H market with 14% of the total assets, while Montenegrin and Slovenian market account for 4% and 2%, respectively.

In 2018, the company recorded an adjusted net interest income of EUR 176.7m and adjusted net fee and commission income of 62.4m. Adjusted Net banking income amounted to EUR 239.1m (+5.3%), while adjusted net income amounted to EUR 30.9m. Such a difference between the adjusted and non-adjusted results mostly came due to a difference in net result on financial instruments (EUR 61m difference).

The company also observed a reduction in NPE ratio of 7.7% (-3.9 p.p.) and a cost of risk of 10 bps.