We are maintaining our Hold on Banco de Chile (BCH), but raising our target price to $52. BCH posted fourth quarter net earnings of Ch$78,715 million, up 86% year-over-year. We expect Banco de Chile's strong results over the past few years to moderate.
Specifically, we expect gains in the efficiency ratio to slow from its past torrid pace, and outsized increases in non-interest income to diminish. As a result, we believe that EPS growth over the next few years will slow to 13%, down from the 35% witnessed over the 2002-07 period.
Results were aided by strong loan growth (up 15%) and a 110 basis-point increase in the margin to 4.7%, as well as robust gains in securities brokerage on volume increases, trends we expect to continue over the near term. The merger with Citigroup, Inc.'s (C) Chilean banking operations became effective on January 1, 2008, with Citibank now holding a 10.44% interest in BCH.
We are raising our 2008 diluted EPADS estimate to $5.15 from $4.34 for 2008, largely due to the depreciation of the US$ against the Chilean peso. We believe the dividend is safe.
At its current price, BCH is trading at a P/E of 11.6X the 2008 consensus EPS estimate, a 14% premium to the industry median P/E of 10.2X based on 2008 consensus estimates (versus a 3% premium at the time of our last report on January 11, 2008), but above its main competitor, Banco Santander Santiago (SAN).
BCH's growth prospects are below average (consensus estimate of five per cent over the next three to five years versus 12% for the industry), while its dividend yield of 8.8% is well above the industry median. Given these facts, we believe BCH is fully valued at present. Our $52 target price represents a 10X P/E of our 2008 EPADS estimate of $5.15.
Read the full analyst report on BCH.
Read the full analyst report on SAN.
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