Citi: Launches target price for National Bank share – The catalysts of the positive story

Her Eleftherias Kourtali

Citigroup today significantly upgraded the target price for the share of the National Bank, placing it now at 4.00 euros from 2.70 euros before, keeping the recommendation neutral and seeing a growth margin of more than 10%. In fact, in the bull scenario of Citi, the National can hold a rally of more than 30% with the target price reaching 4.80 euros.

According to the American bank, the liquidation of the NPEs of the National is proceeding better than it was planned due to the better than expected trends of default in the moratorium portfolio. In its estimates, it incorporates the balance of the planned reduction of NPEs for 2022 amounting to 1.5 billion euros, as a result of which it predicts a reduction of the NPE index to 6% by 2022, as is the guidance of the administration.

Citi reports that the EIB has made significant progress in improving efficiency. Through targeted voluntary exit programs and internal measures, NBG has improved its core cost-to-income ratio to 50% (nine months 2020) from 66% in 2015. It estimates that cost reductions will continue, driven by further targeted voluntary exit programs and more. internal measures in 2022-2023 (-2% to -3%).

The main catalysts, according to Citi for the National, are the following four:

First, the higher interest rates. Citi forecasts interest rates to rise by 25 basis points in December and then increase by 25 basis points every six months until the deposit rate reaches 1%. This is expected to add 1.2% to the ROT return on equity.

Second, the inputs of the Recovery Fund. The first tranche of RRF funding (€ 4 billion – ie about 13% of total grant and lending in Greece) was disbursed in August 2021, with further tranches of up to € 5 billion to be disbursed in 2022. Management expects service loans increased by 1.5 billion euros per year (ie, about 5% of the group’s gross loans in the first nine months of 2021) in 2022, with the support of the Recovery Fund Domestic loans are already 12% higher than in 2019 – that is, the levels before Covid.

Third, the macroeconomic environment. Ethniki expects a 4% increase in Greece’s GDP in the period 2022-24, supported by a) the good prospects for Greek exports, as they increased by 25% on an annual basis in the first nine months of 2021 and are at the highest level historically as a percentage of GDP, b) the optimism for an investment-driven recovery, based on the strong balance sheets, profitability and cash flows of Greek companies, and c) the strong recovery expected in tourism, with some of the lost ground already recovered (tourism revenue in the nine months of 2021 to 55% of the corresponding levels of 2019).

Fourth, an important catalyst for the National is also the dividend payment, which according to Citi will take place in 2023 with the dividend yield reaching 4.3% thanks to the significant reduction of NPEs which opens the door for dividends.

Finally, as he states, he believes that NBG’s plan to achieve a double-digit ROE return ratio by 2023 (compared to the 8.4% forecast by Citi) is ambitious. Also, as he states, the EIB plans to achieve a ROE of 9% this year (compared to 8% estimated by Citi). “We are slightly less optimistic about supplies (average annual growth of 9% in 2020-22, compared to guidance of + 10%) and we are almost in line with the guidance on net NII cost interest rates (-3% in 2020-22), costs (70 million euros improvement in 2020 -22) and CoR risk costs (60 bp in 2022) “, Citi concludes.