Deutsche Bank raises Discount Bank recommendation

Deutsche Bank raised its recommendation from "Hold" to "Buy", but cut its target price from NIS 6 to NIS 5.80.

Deutsche Bank analyst Dan Harverd says that Discount Bank is trading at a wider valuation gap compared with its peers, which is unwarranted since the bank's fundamentals and outlook have not deteriorated compared with them. He adds that it is the most liquid of Israeli banks, with stable retail deposit-based funding.

Furthermore, while the quality of Discount Bank's credit portfolio is similar to its peers, it is less exposed to large borrower groups than Bank Hapoalim (TASE: POLI) and Bank Leumi (TASE: LUMI). "If the current slowdown turns into a recession we would not expect provisioning levels at Discount to decouple for the worse from the sector or its historic norms," says Harverd.

Harverd notes that Discount Bank's management is making a determined effort to increase efficiencies through early retirement, subsidiary mergers and operational measures, which suggest that over time underlying profitability should improve.

Discount Bank's share price fell 0.3% by midday to NIS 4.01, giving a market cap of NIS 4.2 billion.

Published by Globes [online], Israel business news - www.globes-online.com - on June 28, 2012

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