US investment house Merrill Lynch has downgraded its recommendation for Bank Hapoalim (LSE: BKHD; TASE: POLI) from "Buy" to "Neutral".
"Having had an excellent run recently (outperforming the MSCI EMF by 13% year-to-date) and reached our target price, we believe that Hapoalim is about fair value. We are, therefore, downgrading the share to Neutral from Buy. The era of massive dividends is almost over, leaving Israel’s banks with lower operating income and limited room for ROE expansion," Merrill Lynch analysts Haim Israel and Paul Tucker write.
"Hapoalim targets a three-pronged strategy to counter this, focusing on treasury, international expansion and consumer lending. We are convinced of the latter and believe that though Hapoalim can be able to meet its two other targets, it will be easier said than done.
"Hapoalim seems to be on the right track to generate a sustainable ROE of 15%-plus, in our opinion. However, we are not convinced yet that the current environment will allow expansion above these embedded levels," the Merrill Lynch report says.
Israel and Tucker estimate the fair value of Hapoalim stock at NIS 25, which compares with a current price on the Tel Aviv Stock Exchange of NIS 22.30.
Published by Globes [online], Israel business news - www.globes.co.il - on May 21, 2007
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