Bank Pekao SA :PKSVF-US: Earnings Analysis: Q1, 2017 By the Numbers : May 18, 2017

Bank Pekao SA reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of Bank Pekao SA – Bank Handlowy w Warszawie S.A. Sponsored GDR RegS and mBank SA Unsponsored ADR (BHNWF-US and BREJY-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 452.46 million, Net Earnings of USD 86.44 million.
  • Net interest income margins widened from 56.41% to 60.92% compared to the same period last year.
  • Year-on-year change in operating cash flow of -118.55% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline from worsening in operating margins as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 452.46 453.43 471.21 540.7 487.49
Revenue Growth (%YOY) -7.19 -3.86 -2.06 7.76 -1.21
Earnings (mil) 86.44 121.3 134.32 178.61 147.41
Earnings Growth (%YOY) -41.36 8.59 -17.48 7.82 -12.03
Net Margin (%) 19.1 26.75 28.51 33.03 30.24
EPS 0.33 0.46 0.51 0.68 0.56
Return on Equity (%) 6.07 8.5 9.31 11.84 9.52
Return on Assets (%) 0.82 1.15 1.27 1.68 1.38

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Market Share Versus Profits

Revenues History
Earnings History

PKSVF-US‘s change in revenue this period compared to the same period last year of -7.19% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that PKSVF-US is holding onto its market share. Also, for comparison purposes, revenues changed by -0.21% and earnings by -28.74% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline has not come as a result of decline in net interest income margins or because of any loan loss provisions. Both net interest income margins and net interest income after provisions margins have actually improved. In fact, net interest income margins went from 56.41% to 60.92% and net interest income after provisions margins improved from 49.43% to 54.12% over this period. In addition, loan loss provisions as a percentage of net interest income were 11.16% this period , and 12.37% a year ago.

Net Interest Income Margin Versus Loan Loss Provisions Margin

Quadrant label definitions. Hover to know more

High Risk; High Reward Loans, Risky Loan Portfolio, Conservative Loan Portfolio, Safer Loan Portfolio
Net Interest Income Margin History
Loan Loss Provisions Margin History

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

PKSVF-US‘s change in operating cash flow of -118.55% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Contraction of operating margins from 37.86% to 27.03% and (2) One-time items that contributed to a decrease in pretax margins from 37.90% to 26.97%

EBIT Margin History
PreTax Margin History
EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables

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Company Profile

Bank Pekao SA provides retail, corporate and investment banking services to individuals and corporate clients. It operates through the following business segments: Retail Banking, Private Banking, Corporate and Investment Banking, and Assets and Liabilities Management and Other. The Retail Banking segment covers all banking activities related to retail customers, small and micro companies with annual turnover not exceeding PLN 20 million, as well as results of the subsidiaries, and shares in net profit of associates accounted for using the equity method, that are assigned to the retail banking activity. The Private Banking segment is in charge of all banking activities related to individual customers. The Corporate and Investment Banking segment is involved with all banking activated related to the medium and large companies, interbank market, debt securities and other instruments, and results of the subsidiaries that are assigned to the corporate and investment banking activity. The Assets and Liabilities Management and Other segment represents the supervision and monitoring of fund transfers, other activities centrally managed as well as the results of subsidiaries and shares in net profit of associated accounted for using equity method that are not assigned to other reported segments. The company was founded on October 29, 1929 and is headquartered in Warsaw, Poland.

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