Her Eleftherias Kourtalis
The investment houses send a strong message regarding the prospects of Greek banks after the second quarter results announced by Ethniki and Eurobank with Deutsche Bank, Citi, Axia and JP Morgan underlining the significant improvement in their sizes and they say impressed.
EGE
National Bank posted a strong set of results in the second quarter, although net profit was marginally in line with expectations Deutsche Bank due to the commitment of provisions for further restructuring. However, the pace in pre-tax earnings was at +44%, driven by better-than-expected performance, especially in NII net interest income and trading, but also by the significant improvement in forecasts. As a result of the good activity and interest rates, NBG has revised upwards its guidance for NII and provisions for 2022, while confirming cost and risk cost forecasts.
The only slight decline was in CET1 FL, which is now at 15.0% but around 15.9% pro-forma, which, in Deutsche Bank’s view, reflects a significant potential for shareholder returns over the medium term.
Overall, D.B. believes this set of results shows that National is now on track for a significant recovery in profitability in 2022 and a good outlook for 2023-24, despite macroeconomic uncertainty, thus supporting DB’s positive view on its stock , giving a target price of 4.40 euros.
He maintains the Buy recommendation and the target price of 5.5 euros on the part of the Axia Research after NGE’s second quarter results. As he notes, the bank had a strong set of results that comfortably beat Axia’s forecasts, with core banking income (€398m) and net profit after tax (€155m) up +7% and + 21% respectively. The strong numbers were due to: (a) exceptional levels in gross and net disbursements which not only increased the size of the yield portfolio but also created commissions and (b) higher contribution from investment securities (via higher yields). What impressed was that the CFO of Ethniki stated that the outlook for H2 borrowing is stronger than last year, suggesting an increase in NIIs. Expenses and risk costs were broadly in line with estimates, with NBG able to absorb inflationary pressures and reporting no signs of deteriorating asset quality. In addition, Ethniki did not increase the existing target for the year’s RoTE return on equity above 9% (H1 2022 at 9.2%) and still aims for €0.49bn core operating profit (ie 210 million euros in the second half).
THE JP Morgan gives a target price of 4.50 euros for NBG with an overweight recommendation, noting that net profit for the quarter came in at 186 million euros and was significantly above its estimate of 140 million euros, driven mainly by high profits from trading at 204 million euros versus 135 million euros forecast by JP Morgan, while performance in all key areas was better than estimates. Revenues benefited from a visible acceleration in net credit growth as well as sustained growth in fee income while costs remained under control with the cost-to-core revenue ratio further declining to 49% in the quarter. Asset quality was resilient, with net formation of NPEs remaining in negative territory and cost of risk hovering low at 63 basis points. Management gave a subdued but optimistic message about the current operating environment, highlighting the favorable conditions that the Greek economy continues to enjoy.
Eurobank
As far as Eurobank is concerned, Deutsche Bank gives a target price of €1.20 and points out that it posted strong results in the second half although they were mainly driven by trading. Core revenue was also strong, while costs and forecasts appeared to be flat or slightly better than expectations. All this led to significant guidance upgrades, with an 11% RoTE target for 2022. Funds were also better than expected, despite falling bond reserves, thanks to profitability. Overall, D.B. believes that this set of results showed positive trends, putting the bank on track for a significant recovery in profitability for 2022.
From the side of Citi places Eurobank’s target price at 1.30 euros with upside margins of more than 46% from current levels, while estimates that the dividend yield will be 2.7% and maintains the buy recommendation. It notes that Eurobank reported strong core operating profit for the second quarter of 2022, based on better-than-expected net interest and fee income, leading management to upgrade its outlook for 2022 core operating profit from €610m. to 750 million euros (H1: 380 million euros). In terms of valuation, Citi notes that Eurobank is trading at a 2022 P/TBV ratio of 0.52x, which would lead to a sustainable RoTE of 11%.
THE Axia Research also maintains a Buy recommendation on Eurobank with a target price of €1.45. As he notes, the Greek bank had an excellent second quarter as core banking income and net profit after tax came in at €493m and €153m, +5% and +20% above Axia’s estimates. . The pace came from higher NII and fees (+6% and +8%) driven by higher than expected disbursements and income from investment securities.
The real surprise was the size of net disbursements which reached €1.2bn, with Eurobank increasing its 2022 target by 20% (€2.9bn). Expenses and provisions are broadly in line with estimates, with the former increasing slightly due to international activities and the latter hovering at record levels.
NPE formation showed no signs of abating, with Eurobank highlighting the strong fundamentals of the Greek economy, but advising some caution for the coming winter.
Finally, capital ratios were very strong, with CET1 (all-in) jumping to 14% (+130 basis points sequentially). This has positive implications as: (a) Eurobank is above the non-binding 2022 MREL target and can be flexible regarding future MREL issuance and (b) it increases confidence based on discussions with the SMM, that it will proceed with the dividend payment.
Overall, RoTE reached 10.8% (+180 bps vs. Axia’s estimates. After a strong first half, the bank raised its 2022 targets for pre-provisions (€1bn, +15% vs. previous targets) and RoTE at 11% (+100bps).This looks doable given that Euribor and Recovery Fund headwinds will come in H2.
Finally the JP Morgan notes that Eurobank delivered an impressive set of results for the second quarter, significantly beating its forecasts, thanks to higher core and trading income. Results benefited from an acceleration in new lending, sustained growth in fee income and strong trading profits, while asset quality remained resilient with solid organic NPEs formation year-on-year. The capital ratio of FLB3 CET1 funds rose 1.3% to 14% and management gave an upbeat signal about its intention to pay dividends from 2022 earnings.
Overall, Eurobank upgraded guidance for 2022 ROTE to 11% (from 10% previously and after 10.7% ROTE in the first half), paving the way for positive revisions from analysts. In terms of valuation, Eurobank shares are trading at a 2023 P/E of 5.5x and a P/TBV of 0.51x. JPM gives a target price of 1,560 euros for Eurobank and an overweight recommendation.
Source: Capital
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