A Fast-Growing Banking Play On “New Europe”

Since then, NBG has transformed itself into a nimble regional financial giant that now rakes in more than a billion dollars a year and offers one of the top plays on the rapid economic growth of the "New Europe."

NBG is posting some eye-catching numbers. Last week, it reported 2006 net profit of Euro 990 million ($1.3 billion), up 36%, on total revenue of Euro 2.8 billion ($3.7 billion). Total group loans were up 20%; deposits grew 9%; net interest income was up 19%; and full-year fees and commission were up 14%. Net interest margin reached a record high of 3.76% at the end of the last quarter of 2006 from 3.16% for the full year of 2005. Finally, the all-important cost to income ratio was down from 53.3% to 50.7%.

As impressive as these numbers are, it’s NBG’s regional prospects that make it an exciting play. Although NBG expects average annual loan growth of more than 16% per year between 2007 and 2009 for Greece, it expects 35% and 40% growth for its rapidly expanding Turkish and southeastern Europe operations, respectively.

NBG’s newest acquisition, Turkey’s Finansbank, is the biggest feather in NBG’s impressive cap. Making 1 million euros per day for NBG from Day One, Finansbank’s retail loans grew by an incredible 76% last year, small-business and corporate lending rose by a similar amount, and mortgages jumped by a whopping 122%. More than 309 Finansbank branches now are in operation — with 100 new branches opening just in 2006.

Net profit from NBG’s southeastern European operations climbed 47%. Last year, NBG opened 95 new branches in the region to now total 352 branches spread across Romania, Bulgaria, Serbia and Albania.

With 60% of its headcount expected to be outside of Greece in three years time, "National Bank of Greece" is rapidly becoming a misnomer. By 2009, NBG’s Greek operations will contribute only about 55% of profit and 57% of revenues to the overall group — down from 80% currently. Turkey will account for another 30% and southeastern Europe will chip in 13% of group profit and revenues. By 2009, NBG expects its current network of 1,400 branches to expand by over 40%.

The bottom line? With management expecting net profits to grow at an average of 30% per year between 2007 and 2009, the next three years may be the NBG’s best ever.

So Buy National Bank of Greece (NBG) at market today, and place your initial stop at $10.10. Citigroup’s price target for NBG is $13.10, about 20% up from current price levels. Yet with Citigroup’s estimates of 45% earnings-per-share growth putting the stock on a forward P/E of 13 for 2007, (and less than 10 for 2008), I think the stock has significantly more long-term upside.

PORTFOLIO UPDATE

To make room for NBG, let’s move Spanish Conquistador Telefonica (TEF) out of our Global Bull Market Alert portfolio. Although it’s up more than 25% since our initial recommendation, buy and hold investors may still want to hold on to this steady, now $107 billion market cap global blue chip. If you want to keep it, place a 10% trailing stop based on Friday’s closing price of $66.87.