We are assigning a Hold recommendation to the Odeabank (ODEABK) 7.625% 2027 subordinated bond. We acknowledge that profitability is relatively weak – the annualised ROE was less than 1% in Q2. However, the bottom line improved qoq and was much better than in the final quarter of 2018.
Added to this, current valuations appear to discount a lot of negatives. The Odeabank bond is the lowest priced Tier 2 security in Turkey (excluding the Bank Asya 2023). In recent weeks, the ODEABK 2027 has widened relative to Tier 2 securities issued by larger peers including Akbank, Garanti and Vakifbank.
The key risks to our view include negative developments in Lebanon, where Bank Audi, Odeabank’s parent company is headquartered. Bank Audi owns a 76.4% stake in Odeabank. The EBRD, IFC and a member of Abu Dhabi’s Al Nahyan family are also shareholders. Significant TRY weakness and escalation of tensions between Turkey and the US are also risks.