BHP: Competition for Canada’s Noront
BOCH: Interims
CLIN: Another distribution deal
GSK: Three COVID-19 vaccines in Phase III
SPDI: Chairman share purchase
THW: £3m for the brewery site
BOCH: Interims
On Wednesday Bank of Cyprus released its H1 2021 results. Helped by a favourable macro backdrop (Cyprus GDP +12.9% y/y in Q2 2021, supported by a strong recovery in tourism, with the latest data showing tourist arrivals in July +358% y/y (to 54% of 2019 levels)), they show a step change in financial performance. New lending in H1 was +30% y/y. In Q2, total income was +11% q/q (to €152m, so ~€600m annualised, in-line with the numbers needed to deliver on target ROTE – indeed, annualised ROTE in Q2 was 8.1%, ahead of the medium-term target of c.7%); the cost of risk improved by 14bps q/q to an annualised 52bps (medium-term target is 70-80bps, so this is very welcome); while OpEx rose 7% q/q (reflecting seasonality). The C/I ratio improved 2pc q/q to 58%. The Group has drawn a further €300m in TLTRO funding, which is a positive signal about the lending outlook, while TLTRO is guided to deliver a potential NII benefit of €15m over H2 2021 – H1 2022 (versus +€7m in the preceding 12 month period). Staying with income, while NII is under pressure as higher-yielding (and higher risk) legacy loans reduce, non-interest income is rising, with good momentum seen in life insurance. Profit after tax but before non-recurring items was €51m in H1, well ahead of the €13m loss booked in H1 2020.
BOCH has a strong capital position with a CET1 of 14.2%, giving headroom of c.450bps over the minimum regulatory requirement of 9.7% (management’s medium target is “at least 13%”). CET1 fell 20bps q/q in Q2, as organic capital generation and the benefits of falling RWAs were offset by provisions, ‘capital actions’ (redemption fees of high cost legacy instruments) and model tweaks post a review of the REMU book. Worth mentioning here that there is a (ceteris paribus) 60bps CET1 uplift to come from deferred consideration payments on the recent large NPE sale. RWA intensity was a highlight of the results, helped by NPE disposals (and TLTRO drawdown) this is now down to 46%, versus 54% at end-2020 and 70% (!) at end-2018. Also helped by NPE disposals, asset quality metrics improved sharply in H1, with the closing NPE ratio at 14.6% (versus 25.2% at end-2020) while the Group has 60% coverage over NPEs. Management reaffirms guidance to pare the NPE ratio to a single digit percentage by 2022, which should facilitate the introduction of dividends (on the investor call following the release of the results the CEO said that: “By reaching a single digit NPE ratio and proving that we have a sustainable business model, able to deliver organic profitability as you have experienced…we do expect that it would be a right time to initiative discussions with the regulator for lifting the dividend prohibition”. On payment breaks, 96% of expired breaks with a payment due by 12 August have exhibited no arrears. BOCH has a legacy book of real estate exposures, REMU, whose assets fell from €1.5bn at end-2020 to €1.4bn at end-June, with €85m of sales during H1 completed at an average of 9% above book value. What were the negatives? Growth in OpEx isn’t good to see, and while this was attributed to seasonality, total OpEx in H1 was +€6m y/y; while BOCH’s market share of lending has dropped to 39% in H1 from 42% at end-2020 (although this single data point may not be especially meaningful). Asset quality isn’t helped by the moratorium on certain types of foreclosures until October, but this clearly didn’t stop management from paring NPEs during H1. The outlook is positive, with the Cyprus government forecasting FY GDP growth of 5.5% (this looks conservative given the Q2 print), while a new government loan facility of €1bn (70% guaranteed) to support cash flows has just been cleared by the European authorities. Stepping back, the results are consistent with my recent detailed note on BOCH, which argued that economic reopening would provide tailwinds for the Group (evidenced by lending, impairment and fee income trends), with clear implications for returns (evidenced by ROTE, although I wouldn’t get overly excited about one quarter). BOCH trades on about 0.25x P/B, while a 7% normalised ROTE and 11.4% COE (based on where the AT1 is quoted today) would warrant a 0.53x multiple (i.e. a more than doubling in the share price, all else being equal). Further evidence of strong execution could, in my view, lead to such a re-rating. As a footnote, Bloomberg reported on Friday that BOCH is open to making acquisitions, if a suitable opportunity were to emerge, which is something I suggested in my recent piece on the Group.
BHP: Competition for Canada’s Noront
This week it emerged that the privately held Wyloo has made a non-binding proposal to acquire Noront shares, gatecrashing BHP’s bid for the Canadian nickel resources firm. BHP says “it will consider its alternatives should a competing bona fide alternative transaction materialise”. Wyloo’s proposal has been pitched at the C70c level, well above BHP’s C55c recommended bid. Wyloo has a 23% stake in Noront which puts it in a strong position, although: (i) the C74c price (at the time of writing) that Noront trades at suggests that at least some investors are expecting this takeover battle to have at least one more twist; and (ii) BHP’s offer has a minimum tender condition of just 50%+1 of outstanding shares not beneficially owned or controlled by BHP.
GSK: Three COVID-19 vaccines in Phase III
On Tuesday it emerged that GSK, in conjunction with South Korea’s SK Bioscience, are enrolling 4,000 participants in a global study to evaluate the safety and effectiveness of a COVID-19 vaccine candidate, GBP510. This is the third COVID-19 vaccine to move into Phase III for GSK, the others being candidates arising from partnerships with Sanofi and Medicago. GSK has other COVID-19 drugs in development with Vir Biotechnology and CureVac. While ‘late to the party’ on the vaccine front, if it proves the case that booster shots will be needed for COVID-19 then GSK’s portfolio in this area could be very helpful indeed.
THW: £3m for the brewery site
According to a local media report, Daniel Thwaites received £3m for its former brewery site in Blackburn. The price works out at about £400k an acre, which seems reasonable (although I’m no expert on Lancashire property). This will put a modest dent into the Group’s net debt, which stood at £78.8m at end-March 2021.
CLIN: Another distribution deal
On Thursday Clinigen announced that it has signed a distribution deal with PAION for the supply and distribution of PAION’s licensed products in the UK. No details on financials were announced, but this is (by my count) the fourth such announcement in the past couple of months, so it is good to see the group broaden its portfolio.
SPDI: Chairman share purchase
On Tuesday SPDI announced that Chairman Michael Beys has acquired a further 200k shares at 7p (so a £14k outlay), bringing his holding to 680k shares (c. 0.53% of the company’s share capital). This is a positive signal as the Group inches towards the final stages of its all-share merger with Arcona (which Beys was recently appointed a non-executive director of).
Theodosian Capital 