Yesterday, NLB’s shares closed the day at EUR 102 per share, marking the 1st time in its history that the Company’s shares closed above triple-digits. This came after the latest share price increase, with the share price increasing by as much as 3% yesterday!
The story of the triple-digit breach for NLB’s shares goes back a couple of weeks now, with the Company’s shares breaching the magical barrier several times already, but never closing above the said point. This changed yesterday for the 1st time in its history, with the Company’s share price ending yesterday’s trading at EUR 102 per share.
This growth has been a culmination of the increase in share price that the Company’s share recorded, especially in the 2nd half of 2023. In fact, since the start of 2023 up until the present, NLB’s share recorded a return of over 63.5%! During the same period, the SBITOP index achieved a return of “only” 32%.
Performance of NLB, SBITOP (2023 – 2024 YTD, %)
Source: Bloomberg, InterCapital Research
This growth was supported by the general macroeconomic environment, which due to the high inflationary pressures recorded from the 2nd half of 2022 and which remained for most of 2023, meant that the ECB increased interest rates on deposits significantly. This also led to the interest rates on loans increasing, which benefited NLB really well. In fact, NLB’s net income should come close to the one recorded in 2022, despite not having the effect of negative goodwill from 2022, in the amount of EUR 172.9m present!
Furthermore, the Bank recorded a low cost of risk (negative for most of the year, and in its future guidance at 30 – 50 bps), meaning that not only was it achieving higher interest rates on loans, but the ratio of “bad” loans did not increase significantly, while some older loans which were deemed so were able to be resolved.
Going further, despite the expectations of a general recession in the Eurozone, and especially in Slovenia’s main trading partners such as Germany, the Slovenian companies which are largely export-orientated haven’t recorded problems in their operations, which also contributed to lower than expected levels of risk.
For households, the rate of loan growth has slowed down to a large extent due to the higher interest rates, but the rates applied to current loans are high. Furthermore, most fixed interest rate loans from before are only fixed for a certain time period, say 10-15 years, meaning that the longer time that passes with these elevated interest rates, the more of the fixed interest rates loans that are in this category will switch to variable rates, which is also supportive of the net interest margin growth despite the slowdown in the new loan issuance.
Lastly, as NLB operates in the SEE region, there is still a lot of growth potential present. All of these factors, the expectations of solid results, the recently announced M&A, as well as the fact that NLB is still trading at a P/B of app. 0.70x means that the share is still relatively “cheap” and attractive.
