Global Research 25 May 2017 First Read Piraeus Bank SA Equities Q1 17 results broadly in line and new strategy Greece announced Banks, Ex-S&L 12-month rating Neutral * Decent operating results in a difficult quarter 12m price target €0.18 NII was down 3% and net fee income down 11% q/q (but up 10% y/y), leading to a 3% sequential decline in total revenues to €552mn, in line with Bloomberg consensus Price €0.22 (and 5% below UBSe). Operating expenses were 4% lower than last year (-13% q/q) RIC: BOPr.AT BBG: TPEIR GA mainly due to the crystallization of 2016 voluntary exit scheme benefits and branch closures. Loan loss impairments were flat y/y (and -17% q/q). Pre-tax loss came in at Trading data and key metrics €19mn, €4mn below consensus. Net loss amounted to -€6mn, in line with Bloomberg 52-wk range €0.29-0.13 consensus (and €5mn below UBSe. Market cap. €1.89bn/US$2.11bn Shares o/s 8,733m (ORD) Positive NPL and NPE formation, deposit outflows in an uncertain environment Free float 68% Importantly, Eurosystem funding decreased by €5.5bn to €15.5bn, on the back of Avg. daily volume ('000) 28,302 increased EFSF repos, QE sales of EFSF bonds, and EFSF/ESM bond exchange. ELA Avg. daily value (m) €5.7 funding also decreased by €0.9bn q/q, while deposit outflows amounted to €1.4bn Common s/h equity (12/16E) €7.80bn (which then stabilized Qtd). Both NPL and NPE formation turned positive again (+0.4bn P/BV (12/16E) 0.2x and 0.07bn, respectively), as restructuring activity slowed in Q1 17 and re-defaults Tier 1 ratio 13% increased. At the same time, we note that the stock of NPEs dropped by €1.3bn q/q. EPS (UBS, diluted) (€) Agenda 202 announced with ambitious operating targets UBS Cons. Piraeus announced the new strategy "Agenda 2020", which focuses on de-risking the 12/16E 0.01 0.00 balance sheet (separating the group into two operating pillars: Piraeus Bank and Piraeus 12/17E 0.03 0.02 12/18E 0.05 0.04 Legacy Unit), resizing and focusing the business (CI ratio target of 45%), implementing a profitable and sustainable business model (ELA elimination, new loan generation Mate Nemes, CFA mainly in small business finance, consumer loans, credit cards, and fee income growth Analyst through digitalisation), optimising capital allocation, strengthening risk monitoring and [email protected] controls, as well as adopting superior corporate governance standards. In our view, the +41-44-239 1667 new revenue targets (NIM >310bps, net fee margin >65bps) are ambitious but realistic Margarita Streltses in a more supportive environment, while NPE and NPL reduction is largely focused on Analyst meeting and exceeding the current SSM targets. [email protected] +44-20-7567 5356 Valuation: based on GGM Piraeus Bank is trading at 0.3x P/TNAV 2018E for a RoTE of c6%. PE 2017E is 6x, going to 4x in 2018E. Highlights (€m) 12/13 12/14 12/15 12/16E 12/17E 12/18E 12/19E 12/20E Revenues 2,135 2,413 2,393 2,505 2,467 2,419 2,474 2,570 Profit before tax 1,748 (3,014) (2,930) 140 383 636 954 1,019 Net earnings (local GAAP) 2,532 (1,939) (1,858) 94 287 477 716 765 Net earnings (UBS) (1,278) (1,939) (1,858) 94 287 477 715 764 Tier 1 ratio % 13.9 11.9 13.4 13.1 13.5 13.4 14.4 15.3 EPS (UBS, diluted) (€) (25.20) (37.57) (0.42) 0.01 0.03 0.05 0.08 0.09 Profitability/valuation 12/13 12/14 12/15 12/16E 12/17E 12/18E 12/19E 12/20E ROE (UBS) % (57.0) (26.0) (24.6) 1.2 3.7 5.9 8.4 8.4 P/PPOP (diluted) 17.8 9.8 NM 1.5 1.5 1.5 1.5 1.4 P/BV x 1.2 1.3 34.5 0.2 0.2 0.2 0.2 0.2 P/BV (UBS) x 1.2 1.4 35.7 0.3 0.2 0.2 0.2 0.2 P/E (UBS, diluted) (6.9) (4.1) (73.6) 20.1 6.6 4.0 2.6 2.5 Net dividend yield % 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Source: Company accounts, Thomson Reuters, UBS estimates. Metrics marked as (UBS) have had analyst adjustments applied. Valuations: based on an average share price that year, (E): based on a share price of €0.22 on 24 May 2017 21:01 BST www.ubs.com/investmentresearch This report has been prepared by UBS Limited. * Exception to core rating bands; See page 3. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 3. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Forecast returns Forecast price appreciation -16.7% Forecast dividend yield 0.0% Forecast stock return -16.7% Market return assumption 11.1% Forecast excess return -27.8% Valuation Method and Risk Statement Piraeus is the largest of the four systemic banks in Greece and, as such, is exposed to a broad array of risks, including slower economic recovery, a further deterioration of asset quality, regulatory change and political uncertainty. Piraeus has acquired six banks during the consolidation of the Greek banking sector and, as such, is exposed to the broader operational risks of managing a larger franchise. Piraeus also has activities in Cyprus, Egypt and SEE, where changes to political and regulatory environments can pose additional risks. We value Piraeus using a single-stage Gordon growth model. First Read: Piraeus Bank SA 25 May 2017 2 Required Disclosures This report has been prepared by UBS Limited, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additional information will be made available upon request. UBS Securities Co. Limited is licensed to conduct securities investment consultancy businesses by the China Securities Regulatory Commission. UBS acts or may act as principal in the debt securities (or in related derivatives) that may be the subject of this report. This recommendation was finalized on: 25 May 2017 05:09 AM GMT. Analyst Certification:Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner, including with respect to UBS, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. UBS Investment Research: Global Equity Rating Definitions 12-Month Rating Definition Coverage1 IB Services2 Buy FSR is > 6% above the MRA. 46% 30% Neutral FSR is between -6% and 6% of the MRA. 38% 28% Sell FSR is > 6% below the MRA. 16% 18% Short-Term Rating Definition Coverage3 IB Services4 Stock price expected to rise within three months from the time <1% <1% Buy the rating was assigned because of a specific catalyst or event. Stock price expected to fall within three months from the time <1% <1% Sell the rating was assigned because of a specific catalyst or event. Source: UBS. Rating allocations are as of 31 March 2017. 1:Percentage of companies under coverage globally within the 12-month rating category. 2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months. 3:Percentage of companies under coverage globally within the Short-Term rating category. 4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months. KEY DEFINITIONS:Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case. Equity Price Targets have an investment horizon of 12 months. EXCEPTIONS AND SPECIAL CASES:UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performance record, discount.