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Leader & Co today published an assessment that Bank Hapoalim should be trading at a multiple much higher than granted by the market.

The brokerage's assessment lends backing to an evaluation made two weeks ago by Prof. Amir Barnea, who estimated that Bank Hapoalim's equity multiple should be 1.24%. The bank's multiple on the Tel Aviv Stock Exchange is 0.68. If investors had accepted Barnea's evaluation, Hapoalim's share should have risen, but in fact it sank.

Leader & Co analyst Yuvan Ben-Dror distinguishes in his research between evaluations of the bank's short term and long term.

In the long term, he estimates that Hapoalims representative return on equity will be 13%, extrapolating to a multiple of 1.4.

In the short term, the bank's equity price should be 9.3%, versus expected short-term return on equity of 8.4% (based on the average forecast for 2002 and 2003). Hence, a short-term target price, based on an equity multiple of 0.9%, works out to NIS 9.7 which is 30% above Hapoalims price on the TASE.

Ben-Dror therefore rates Hapoalim stock a Buy.

The bank's second-quarter results surprised for the better, Leader & Co points out. Hapoalim said it netted NIS 223 million, versus predictions of NIS 118 million.

Two factors lifted Hapoalim's results beyond forecasts: higher financing income than predicted, and lower operating costs, Ben Dror said.

But the brokerage foresees Hapoalim's provision for doubtful debt staying high. For the second quarter, its provision for doubtful debt was NIS 400 million, or 0.9% of its credit portfolio, a ratio Leader & Co sees staying much the same in the second half of the year.

The bank improved its capital adequacy ratio to 10.1%, but buying Maritime Bank could lower that to 9.9% or 10%, Leader & Co. says.

As for the perceived destabilization of Israel's small banks, if anything Ben-Dror sees that helping the big banks, which will increase their market share at the expense of the minnows.

Leader & Co estimates that Bank Hapoalim will net NIS 1.05 billion in 2002, 10% more than in 2001, despite a 7.5% slide in financing income to NIS 5.59 billion, and 15% growth in provision for doubtful debt to NIS 1.47 billion.

For 2003, the brokerage foresees Hapoalim netting NIS 1.35 billion, with financing income of NIS 5.81 billion and provision for doubtful debt dropping to NIS 1.2 billion.