Erste Bank der oesterreichischen Sparkassen was upbeat about profit hopes at its Romanian unit after posting a 25 percent rise in second-quarter earnings on Tuesday, but weak Czech results held back shares.
Net profit after minorities rose to 263.9 million euros ($360.8 million) for the quarter to June, 5 percent below the average estimate in a Reuters poll of 15 analysts, even though overall revenue grew faster than analysts expected.
Erste's key growth hope, its 3.75 billion euro acquisition Banca Comerciala Romana (BCR), raised earnings faster than expected and Chief Executive Andreas Treichl said he was more confident BCR would deliver its promised earnings growth.
"We confirm the goal of 40 percent net profit growth after restructuring costs this year," Treichl told journalists at a news conference. "We don't think this is an aggressive goal anymore after the first half of the year."
But Czech franchise Ceska Sporitelna, Erste's biggest unit in the former Communist bloc, increased net profit by just 5 percent in the quarter, a far shot from the 15-20 percent growth promised for the full year, raising some investors' eyebrows.
"It's a relief that BCR came in better than expected," said Stefan Maxian, analyst at Austria's RCB. "The big issue are the high costs. Erste blames this on one-offs for restructuring and start-ups, and if they keep the guidance it must be true."
"But there are issues with higher staff costs (because) everybody in central Europe is seeking qualified staff." Erste shares, which had dropped 4 percent last week, traded up 2.8 percent at 55.00 euros by 1103 GMT, in line with the strong rebound of the DJ European banking index, which was up 2.8 percent, and the Vienna bourse's eastern European banking index, which was up 2.7 percent.
"Investors will be relieved to see improving momentum at BCR, but questions over the cost overruns at Ceska may hold back the shares today," Credit Suisse analyst Ivan Vatchkov said in a note to clients.
Treichl last year topped a buying spree in central Europe with the BCR purchase. Erste is now the second-biggest lender in the former communist bloc, trailing only UniCredit's Bank Austria. As central Europe catches up with the West and consumers and companies borrow more money, Erste's net interest income rose 26 percent in the quarter, more than forecast on average, while provisions for bad loans expanded less than expected.
Fee and commission income grew 25 percent, in line with estimates, while trading income, a volatile revenue source, more than doubled, beating estimates. However, operating expenses rose 30 percent, for which Erste blamed the integration cost of BCR and higher costs at Ceska, which it characterised as a one-off, reiterating its pledge to raise Ceska's net profit by 15 to 20 percent in the full year.
CEO Treichl said he expected cost growth to slow in the second half of the year and reiterated he expected full-year net profit to rise by at least 25 percent.
Erste disappointed investors in April with first-quarter results that showed a weak revenue mix and high cost growth, and its shares have dropped by 13 percent since. They are now trading at 12 times next year's forecast earnings as investors remain sceptical about BCR and growth prospects in more developed central European countries.
Investors pay 16 times next year's earnings for Raiffeisen International, which does not have an Austrian business and has ventured even farther east, and 20 times next year's earnings for Poland's PKO.