"We believe that that Bank Hapoalim (TASE: POLI; LSE:80OA) is liable to publish a profit warning for the fourth quarter," says Clal Finance Batucha analyst Yuval Ben-Zeev in an update on the bank today. "The bank will report a negligible profit for the fourth quarter, and possibly even a loss."
Bank Hapoalim will publish its financial reports for the fourth quarter of 2008 and for the year as a whole in late March.
Ben-Zeev reiterated his "Market perform" recommendation for Bank Hapoalim. However, he did not give a target price for the share, although he gives the bank an economic value of NIS 12 per share, the target price he set in November 2008. Bank Hapoalim's share opened at NIS 7.65 today, giving a market cap of NIS 10.2 billion.
Ben-Zeev notes that, in October 2008, Bank Hapoalim published guidance, which implied a 0-2% return on shareholders' equity for the year. However, he predicts that the bank will actually report a negative return of 2-3% for the year. "Either way, the year is lost" for the bank, he says.
Ben-Zeev also notes that, in October, Bank Hapoalim predicted a profit of more than NIS 1 billion for the second half of 2008. This would have meant a profit of at least NIS 560 million for the fourth quarter, with an upper target range of NIS 850 million.
Ben-Zeev does not believe that this is achievable, and cites several reasons: a large provision for doubtful debts, heavy financing expenses for the accounting handling of derivatives, a provision for the bank's voluntary retirement plan, the effect of deflation, declining revenue from fees, and possible provisions for the bank's bonds portfolio and holdings in subsidiaries.
Ben-Zeev concludes, "We believe that Bank Hapoalim will ultimately publish its return on equity targets for 2009, since the bank stresses transparency and will wish to continue this principle. Nevertheless, the return on equity targets will probably be low, at 5-6%. We believe that these low targets will be combined with the bank's desire to meet its annual targets after the lost year of 2008.
"We believe that the probable weak results will be the result of a sharp increase in the provision for doubtful debts alongside a drop in revenue from operating and other fees, especially from the capital market. Revenue from the credit card sector is unlikely to cover the loss in revenue."
Published by Globes [online], Israel business news - www.globes-online.com - on January 28, 2009
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