Sberbank with interest rate tailwind: Valuation already more than cheap

Russia’s largest bank will open its books on Thursday, October 28th. Sberbank continues to benefit from interest rate developments and its involvement in the start-up sector, while the Russian economy suffers from the pandemic. The share recently climbed a multi-year high, and the Q3 figures could trigger a further boost.

According to preliminary figures, which have not been audited according to international accounting standards, the bank earned 937 billion Russian rubles (11.4 billion euros) in the first nine months. The return on equity reached 26 percent, which should be a top figure globally.

The consensus expects pre-tax profits of 4.27 billion euros for the third quarter. The driver is likely to be the rising key interest rates, which are pushing Sberbank’s large loan book. The Russian central bank has already raised the key interest rate several times this year to 7.5 percent. A year ago they were still 4.25 percent. Sberbank’s net interest income should benefit greatly from this as the bank turned its loan book and issued many floating rate loans over the past year. Over time, these are adjusted to benchmark interest rates such as the key interest rate.

Sberbank’s valuation remains cheap with a 2022 P / E ratio of 7, especially when compared to its peers in the emerging markets. Russia’s largest player is also traded at a strong valuation discount compared to the euro zone banks or the US competition. The profitability of Sberbank should continue and allow further investments in sectors outside the financial sector. For several years, the management has been successfully diversifying into start-ups in the areas of e-commerce, cloud or delivery services, for example. Investors therefore also look at the revenues that the group generates outside of traditional business.