Nordea Bank Polska S. A. A strategic and financial valuation of a bank in a former Soviet country

Niels Henrik Stok Eskildsen

Student thesis: Master thesis

Abstract

The main goal of this thesis was to determine the value of Nordea Bank Polska S.A. The foundation of the valuation was build on a strategic analysis of Poland, the Polish banking sector and Nordea Poland. Furthermore, a financial analysis was carried out to illustrate the banks historical performance. To perform the valuation of Nordea Poland, it was decided to use a equity cash flow model. The chosen model was altered slightly to reflect the great importance that capital requirements have on banks in today’s financial world. The strategic analysis showed that Poland has been undergoing a rapid transformation during the last decades. Poland’s economic foundation is currently very strong and the outlook is positive. GDP figures in the country are currently among the highest in Europe and issues such as consumer spending, foreign direct investments and the trade balance are the main drivers. The analysis furthermore showed, that the banking sector in Poland has been growing rapidly and is characterised by fierce competition following an extraordinary increase of foreign banks. The sector has become increasingly westernised and the demand for financial services and lending is steadily increasing. The strategic analysis of Nordea Poland showed, that the bank has been successful in transferring and incorporating the strong and solid banking model of the mother company. This has given the bank an advantage over other core competitors in the sector, allowing the bank to attract an increased amount of customers and thus achieve its main goal of growth. This tendency is also reflected in the financial performance of the bank. The financial analysis showed that Nordea Poland’s performance in the last years has been remarkable. The bank has been able to increase its net income with 7,5 times in a period of six years, and the loan portfolio has grown with an average of 40% in the same period. This was also reflected when comparing the bank to its main peers, where Nordea Poland especially during the financial downturn has performed exceptionally well. Approaching the valuation, it was estimated that Nordea Poland will be able to grow at the same pace at which the bank has been doing for the last years. Most of growth is estimated to be caused by a dramatic increase in the banks loan portfolio, especially in terms of mortgage loans. Following this, net income is expected to grow 2,5 times in the next four years. Additionally, the bank is estimated to increase its income from fees and commission following a general growth in the banks customer base. The theoretical share price of Nordea Poland was calculated to be PLN 49,26 on the 31st of December. In comparison to its peers, it was found that Nordea Poland’s share price is very cheap. However, this was mostly explained by the fact that the bank currently is in a different phase than many of its peers, and the prices thus are not easily comparable. Nordea Poland’s current share trades at PLN 40,10, and the share thus has an upside potential of nearly 23%. As the valuation showed that the share has a strong upside, the initial recommendation is to buy the share.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2011
Number of pages121