MTS Bank may hold an IPO in the near future

MTS Bank may hold an IPO in the near future. In particular, the bank’s shareholders decided to obtain a listing on the Moscow Exchange, and the board of directors approved the decision to conduct an additional issue by open subscription. Market participants expect that the bank will be placed at a price below capital in order to attract investors, but subsequently carry out additional placements at increased quotes. Sovcombank conducted a similar IPO at the end of 2023, after which the share price increased by more than 50%.

An extraordinary meeting of shareholders of MTS Bank (at the beginning of 2024 it ranked 24th in terms of assets, according to Interfax) decided to apply to the Moscow Exchange for a listing. The bank disclosed this information on Wednesday, March 13. In addition, the bank’s board of directors decided to conduct an additional issue of 7.19 million shares (19% of the increased authorized capital) with a par value of 3.6 billion rubles. by open subscription.

In mid-February, Reuters, citing its sources, reported plans to hold an IPO of the bank in the “spring window”. A Kommersant source in the financial market admits that MTS Bank may conduct an IPO in the second quarter of 2024 under the cash in scheme. According to him, “the funds raised can be used for the organic growth of the bank’s business.” MTS Bank said that “it is premature to talk about specific plans,” but they allow “various development scenarios.”

Market participants point to a number of positive indicators of the bank. In particular, with income growing by approximately 50% (operating income before provisions increased by 47%, to RUB 64.5 billion), the number of clients grew by only 8% (to 3.8 million people), which indicates significant growth income per client, notes Mikhail Nesterov, head of the analytical department of TKB Investment Partners. The head of the customer service department of Alfa Capital Management Company, Alexander Abrahamyan, emphasizes that the peculiarity of MTS Bank is access to big data from the parent company (MTS, which owns 99.9% of the bank), based on a base of more than 80 million subscribers. If the bank manages to maintain high growth rates and profitability, or even increase them, “it would be logical to see a premium compared to other players in the market,” he said.

At the same time, return on equity (ROE) in 2023, according to MTS Bank, was slightly higher than 19%. To a large extent, this became possible due to the growth of consumer lending, says a portfolio manager of a large management company. However, this is lower than the profitability shown by the banking sector: according to the Central Bank, in 2023 the ROE of banks was 25.9%.

According to Reuters sources, MTS Bank plans to raise 15 billion rubles. Kommersant’s interlocutors believe that the placement volume could amount to 10–15 billion rubles. Finam Financial Group analyst Igor Dodonov believes that the market will be offered 10–15% of the bank’s shares. The bank’s shareholders can first place a small package at a very interesting valuation for private investors, and subsequent attractions will be at higher prices, admits Andrey Petrov, director of client relations at BCS World of Investments.

The majority of analysts interviewed by Kommersant believe that for an initial placement the bank can be valued above capital – in the range of 1.1–1.4. However, according to Andrey Petrov, taking into account return on equity, the IPO valuation of about 0.8 of capital “would imply a good upside.” Sovcombank, notes Alexander Abrahamyan, was placed at a slight discount relative to capital (see Kommersant, December 15, 2023), showing a history of stock growth “by 53% in just three months.” “It’s right when a company leaves a reserve so that investors can make money,” he says. According to Igor Dodonov, the median value of the P/B multiplier (price/book value) of Russian public banks is now 1x, the P/E multiplier (the ratio of the company’s price to earnings) in 2023 is 4.8x. “Averaging the estimates obtained using two multipliers, we get the indicative value of the bank in the region of 66 billion rubles,” he concludes.

Olga Sherunkova, Vitaly Gaidaev