Switzerland's UBS advises to buy Erste Group shares, which it sees at 15 euros

The Swiss financial group UBS recommends buyers to go for shares of Austrian lender Erste Group and established a target unitary price of 15 euros, despite grim outlooks from investors, who are selling stocks tied to Central and Eastern Europe, a UBS report shows.

UBS analysts consider that at present investors are selling all shares of companies with exposures in Central and Eastern Europe (CEE) without making any differences. This approach is wrong when it comes to Erste shares because the lender's perspectives are considered better compared to other banks operating in the region.

Erste's credit to deposit ratio on the CEE markets is less than 1 and, moreover, is possible that the Austrian bank benefits from state financing, which provides a safety net for 2009.

The same analysts estimate Erste Bank will obtain a net profit of 279 million euros this year, slightly up from the anticipated 255 million euros for 2008, despite negative outlook regarding a climb in the volume of nonprofitable credits of banks in the CEE. 

UBS expects the nonprofitable credit rate to reach 8 percent in the region by year-end and to rise to 10 percent in 2010, after it stood at 3 percent at the end of the third quarter of 2008.

But Erste could see a positive trend of its net profit, which could reach 487 million euros in 2010.

Erste recently announced the group's operating profit hiked 19 percent year-on-year in 2008 to 3 billion euros and estimates a net profit of 860 million euros despite the hardships of the past quarter.

Erste Group (EBS) is traded on the stock markets in Vienna, Prague and Bucharest and has a capitalization of 2.26 billion euros according to the last trading value of 7.15 euros on February 24.

Earlier this week analysts of ING group lowered the target prices for shares of banks in the region, among which second Romanian lender by assets BRD, Erste, Raiffeisen International and OTP and revised the investment recommendations for some of them.

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