Kristjan Liivamägi, lecturer at the Entrepreneurship University of Applied Sciences and senior lecturer at Tallinn University of Technology (TalTech) Department of Economics and Finance, believes that shares in the Estonian capital-based Coop Pank are overvalued.
"The ratio analysis method shows that the price per share of the initial public offering (IPO) of Coop Pank — €1.15-1.30 per share — is significantly more expensive compared with the average of comparable companies, which were Swedbank AB, LHV Pank AS and Siauliu Bankas AB," Liivamägi said in a press release.
If the book value to equity ratio is similar to that of comparable companies, Coop Pank is 65 percent overvalued in terms of share price to earnings ratio, he explained. "Coop Pank's return on equity and dividend yield are also clearly lower than that of comparable companies," he added.
Coop Pank has shown fast growth in recent years, Liivamägi said, noting that this growth would not continue at this pace in the coming years, which is why such high value ratios aren't justified.
"In addition, a warning sign for me is the share of loan provisions, or estimated bad loans, in Coop Pank's 2018 annual report, which have remained at a similar level in recent years," the economist said. "It is not commercially plausible for me that loan provisions have not increased with the rapid growth in loan volumes and that customers' payment behavior has actually improved considerably with higher loan volumes."
Consequently, he believes that Coop has been too optimistic in assessing loan provisions, and that the expenses of loan provisions are also likely to increase in the coming periods as a result of higher loan volumes. "This has a negative impact on the company's net profit and share price," he added.
Another warning sign, he continued, is that existing shareholders want to sell their stakes during the IPO. "This typically signals that existing and more informed investors either overestimate the stock price or do not believe that this growth rate will continue," he explained.
IPO subscription period concluded Friday
The subscription period of the IPO of Coop Pank shares began on Nov. 18 and lasted through 3:30 p.m. on Friday, Nov. 29.
During the IPO, Coop Pank expected to raise €37 million of additional capital to finance its development strategy, issuing up to 32.2 million new shares.
The Nasdaq Tallinn Listing and Surveillance Committee decided on Tuesday to approve an application from Coop Pank AS to list up to 94,400,000 no par value shares in Coop Pank AS.
The shares will be listed on the main list of the Nasdaq Tallinn Stock Exchange (TSE) on Dec. 9 if the offering has been completed according to the principles outlined in the prospectus and the results of the offering are disclosed.
Editor: Aili Vahtla