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Central Cooperative Bank-Valuation

Introduction:

• Central Cooperative Bank was established in 1991 and in 2002 the state share was bought by it’s current majority shareholder- Chimimport. The Bank is twelfth by assets size and is put in the second group Banks (according the BNB classification, which uses assets sizes for sorting) and is among the most popular brands on the market. CCB is a public company since 1999 and over the years gradually acquired the status of a blue chip stock.
• Central Cooperative Bank is a traditional commercial bank, with deposit/credit activity being its main occupation. The Bank is among the leaders in serving the agricultural sector in Bulgaria, benefiting most of the synergy with other companies in the group of Chimimport. The group of Chimimport consists of banking, non-life and life insurance companies, pension firms, aviation businesses and industrial companies.
• CCB is the third biggest banks among the commercial banks that are not owned by large international financial institutions, and is not fed with cheaper funds, at EURIBOR + small markup.
• Central Cooperative Bank manages to successfully use the capital market for increasing its equity. The Bank is one with the highest capital adequacy ratios and it’s conservativeness in loans distribution makes the bank very well prepared for the financial turmoil speeded around the world.
• Central Cooperative Bank expanded its activity in the Balkans region through its subsidiary-a Macedonian commercial bank-CCB-Skopie (former Sileks Bank).
• The Bank operates in an emerging economical region (Bulgaria and Macedonia) with high growth potential. Despite the fact that CEE and SEE is hard hit by the global economical slowdown, New Europe remains very competitive, mainly through it’s lower cost capital, land and labor resources.
• We consider current market values for CCB’s shares to understate Bank’s potential and perspectives. Prices of all financial institutions around the world experienced considerable decreases, so are the shares of Bulgarian public banks, but we consider stocks of Central Cooperative Bank to be vastly undervalued, giving investors good return opportunities. Fair value of CCB obtained in this analysis is 2.246 EUR per share, which gives 197% return potential. Inputs in our models are rather conservative, reflecting further economy slow down.
• Currency board in Bulgaria remains stable, and all policy parties agree that the currency board and the peg between EUR and BGN should be kept unchanged at 1.95583 BGN per 1 EUR, till Bulgaria enters the Eurozone. As of 31.12.2008 almost 60% of all loans lent are denominated in currency (mostly in EUR), thus a BGN devaluation means larger BGN payments for borrowers. Current account and trade deficits have started to shrink very swiftly. Currencies of the other CEE countries stabilized and started to advance. All these leads to smaller pressure on the Bulgaria’s currency board and BGN/EUR peg.
• Higher interest rates on deposits and interbank lending, and higher government bonds yields show clearly that higher policy, economy and currency risks persist.