National Bank of Kuwait (NBK) Capital has upgraded its view of Riyadh’s Arab National Bank (ANB) to buy from hold.
“ We cut our fair value for ANB by 22 per cent to SR 28.40, which still reflects a 29 per cent upside potential; therefore, we upgrade our recommendation on the stock to Buy from Hold,” NBK Capital said in a commentary released today. “ANB’s stock has underperformed recently, dropping by 19 per cent quarter-to-date, compared with a 10 per cent decrease in the Saudi baking index. We think the stock is trading now at an excessively cheap multiple of 2016 P/B of 0.9.”
NBK Capital said the decrease in fair value was driven by lower net profit in the forecast horizon, mainly due to higher loan provisioning and lower non-interest income, an increase in the cost of equity and lower valuation derived from the peer-based model.
“We have cut our 2016 and 2017 net profit forecasts by 10 per cent and 14 per cent, respectively,” NBK Capital said. The forecast bank’s loan growth in 2016 and 2017 of 4 per cent a year will fall behind the sector’s.