HSBC revised upwards its estimates for the profits and target prices of Greek banks, after the stronger than expected second quarter they announced.
In particular, it says that Greek banks surprised with strong loan growth, a faster readjustment of securities on their books and strong fee income in the second quarter, adding that the positive impact of interest rate increases on loan yields has not yet recorded.
It also notes that banks have managed operating costs well and there have been no early signs of deterioration in asset quality.
It therefore revised its forecasts upward to reflect optimistic revenue trends and raised its estimates for bank earnings in 2022, 2023 and 2024 by 11%, 10% and 11%. on average, respectively.
HSBC notes that results were strong across banks with earnings before provisions (PPI) rising 8%-11% quarter-on-quarter.
Alpha had the best credit growth and cost control, but core PPI growth fell slightly below those of the other banks due to lower provisions.
Loan growth was slower at National Bank, but strong growth in net interest income (NII) and fees resulted in pre-provision profits being in line with other banks.
Eurobank stood out with the best CET-1 capital ratio in the second quarter thanks to strong trading profits.
However, from a valuation point of view, HSBC believes that the most promising results in the second quarter were shown by Piraeus Bank. Strong pre-provision earnings growth and good capital generation make its valuation in terms of tangible book value (P/TBV at 2.24x) extremely attractive.
A strong improvement in the operating performance of Greek banks in the first half of 2022 remained high despite fears of a recession across the EU. Despite their recovery since July, shares are still down 25% over the past 3 months.
Banks are trading at 0.44x 2022 P/TBV and 5.0x 2023 price-to-earnings (P/E) on average, which look quite attractive to index ROTE at 8% versus cost of funds of 14.0%.
HSBC sees more upside than the consensus earnings estimates for Eurobank and Piraeus, with the former remaining its favorite due to its strong balance sheet and superior profitability.
As for Piraeus Bank, he speaks positively about the risk/return ratio, with the P/TBV ratio being the lowest in the EU and the EMEA region, adding that its balance sheet consolidation is almost complete with the ROTE ratio for 2023 to be around 9%.
The new price targets and the “market” recommendation
HSBC gives all four systemic Greek banks a “buy” recommendation, while increasing the target prices.
More specifically, for Alpha Bank he gives a target price of 1.45 euros, from 1.25 euros previously, with the margin for the share rising at 48%.
For Eurobank, the target price is set at €1.65 from €1.45 previously, suggesting upside of 68%.
For National Bank, he gives a target price of 4.55 euros from 4.15 euros before, with the upside margin for the title moving to 34%.
Finally, for Piraeus Bank, the target price rises to 2.70 euros from 1.95 euros previously, indicating a 139% upside for the stock.