Global Research has upgraded its recommendation on The Saudi British Bank (SABB) to “strong buy” from “hold,” while cutting the stock’s target price to SAR 27.3 from SAR 37.90, the research arm of Global Investment House said in a recent note.
The rating upgrade was driven by the stock’s enticing valuations post correction, as SABB has seen a 37 percent fall in its share price over the last 12 months and offers an attractive entry point.
Global said it remains cautious on the bank’s asset quality amid a low oil-price environment and tighter growth in local economy.
“We expect the NPL ratio to inch upwards to 1.7 percent by 2017e but we do not see further deterioration in the same, expecting it to stabilize and improve slightly to 1.6 percent by 2019e,” it added.
Global added that it revised down its expectations for SABB’s net profit by 22 percent in the current fiscal year to SAR 4.2 million. However, earnings growth will likely resume in 2017.
Provisions estimates were increased by 72.5 percent to SAR 599 million.
Major downside risks for the valuation are a potential decline in loan volume growth, further asset deterioration, and higher cost of risk.
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