We see great potential in Komerční banka, the price is still attractive, says experienced investor Michal Semotan

Komerční banka has been a frequently discussed topic on our domestic scene lately. KB shares have fallen to very attractive prices this year, which many investors have undoubtedly taken advantage of and included the bank in their portfolios. Since my recent article on Komerční banka was quite successful and KB is obviously of interest to you, I decided to approach a well-known Czech investor, Michal Semotan, to answer a few questions and give us his view on the current situation regarding KB, its potential, possible risks, windfall tax and more.

Portfolio manager of J&T Investment Company Michal Semotan

Komerční banka is one of the most attractive stocks on the Prague Stock Exchange and one of the most frequently mentioned names in connection with the windfall tax. I recently focused on this topic in my article where I discuss the quarterly results, risks, reasons for the drop and more - link here. I am generally bullish on KB and see the current declines as an opportunity accompanied by a fat dividend. Of course, I'm an investor like any of you who has a perspective, but I'm open to other opinions and arguments that can help me in my complete analysis of a given company. It is for this reason that I decided to reach out to a much more experienced investor, which is Michal Semotan.

Who is Michal Semotan?

Michal Semotan is an active investor and a portfolio manager at J&T Investment Company, where he manages stock portfolios. Michal has been active in the capital markets since 1997, so he is a very experienced investor who has a lot to tell us and share with us.

Komerční banka

In your recent Twitter post, I saw that the top 10 positions in J&T Opportunity as of 8/31/2022 included the aforementioned KB. I know from many conversations that you are welcoming and open to the community, so my first question is:

Why did you decide to invest in Komerční banka? The Prague Stock Exchange gives us the opportunity to choose from 3 well-known bank names, which are MONETA, KB and Erste. Do you perceive the greatest benefit and potential for growth from KB?

For me, KB represented a conservative banking title, with stable results and an attractive regular dividend, with the possibility of an extraordinary dividend from the profits of previous years, paid during this autumn. KB's shares suffered heavily due to the war in Ukraine, with foreign investors exiting positions due to concerns about the decline in GDP in the region impacting the banks. Subsequent news of extraordinary taxes, whatever you want to call them, then compounded the decline and sent KB shares to absurdly low levels - in my view. Therefore, we have increased our position in KB, which currently makes up about 5% of J&T Opportunity's portfolio (the 5th largest position).

If it were possible, I would like to ask at what price did you start building your position in KB? Komerční banka closed the day at 671 CZK yesterday and investors will definitely also be interested to know if the current price is still attractive from an investment perspective = is it undervalued?

We have been buying Komerční banka shares in the range of CZK 870 to CZK 595 this year, with our average price being slightly above CZK 700. The situation now is certainly more complicated than we imagined at the beginning of the year, and in the short term KB stock may correct the massive growth of the previous days. Longer term, however, I think the current price (690Kč) is interesting, and will deliver a regular dividend to the portfolio. If a special tax for banks is introduced - as is likely, the attractiveness of the current price can then be better specified. However, I personally do not expect the special tax to take more than about CZK 2bn a year from Komerční banka.

Do you think that in the current market environment KB will be a risky investment from a certain point of view? Of course, on the one hand, we have interest rates, which is good for banks, but on the other hand, we have the current inflationary pressures, the war in Ukraine and the often mentioned windfall tax (of course, these are only a handful of the problems that are currently weighing on us).

I see more concern about lower lending activity due to high interest rates.... On the other hand, it allows the bank to do short term business even with the help of just high central bank rates. The war in Ukraine is more of a knock on the value of KB from the perspective of foreign investors (they don't want to be exposed near a war conflict - what if something...), I don't see a major impact on KB's performance in this regard. I would be more concerned about rising energy prices (and yes, this is also a consequence of the war) which may send some businesses into bankruptcy, but capping energy prices could significantly reduce these impacts. It's always a quid pro quo though, the bank is more attractive to buy at lower prices but at higher risk.. that's the beauty of the market, everyone can choose what suits them. Lower price + higher risk but higher potential, or higher price and less risk and potential.

Going back to the previous question - do you think the windfall tax is already priced into KB stock? If so, I would like to ask if you expect and if so, how much downside do you expect once the specific WFT specifications are announced?

I still expect a short-term negative move in KB stock at the time of the announcement, but I believe it will be quickly smoothed back out as I do not expect a devastating level of this tax. After all, a sensible finance minister wants to have a healthy banking sector, not to cut it with a brutal tax, I still believe in common sense somehow, and I don't believe the amounts initially published.

If we are talking about KB, words like stability, strength and a relatively fat dividend come to mind, which combined with the current price is a very tempting formula. So my last question is about the investment horizon - do you consider KB as a long-term lucrative investment?

Yes, exactly as described in the question, that is how I view KB stock. There may be downward movement on the current price after the rise, but in the long term, KB is indeed capable of generating a regular interesting dividend yield from my perspective. Despite the future downward movement in rates, which I expect in the second half of 2023 or early 2024. So I see KB stock as an investment over a minimum of 3 years, but probably significantly longer.


This statement just confirms my view that at current prices, KB stock is very attractive. I think the article may be beneficial to those who are still undecided and will provide much needed pieces to complete the puzzle. There was some useful information presented here today - why there is potential in KB, the risks, the windfall tax and finally the investment horizon for holding KB stock.

Most interesting insights:

  1. We currently have the possibility of lower lending activity in play due to high interest rates, but this will allow the bank to execute short-term deals.
  2. The special tax should not take more than about CZK 2bn a year from Komerční banka.
  3. KB shares are an investment for a horizon of at least 3 years, but probably significantly longer.

For more such interesting articles and information, keep an eye on Bulios and of course Michal Semotan who contributed his perspective.

Please note that this is not financial advice. Every investment must go through a thorough analysis.

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