HSCB ‘Taurus’: ‘Buy’ and higher target prices for all Greek banks – Very strong prospects have not yet been assessed

Of Eleftheria Kourtali

HSBC examines in today’s report whether the increase in loans with “weapons” the resources of the Recovery Fund could help offset the headwinds in net interest income (NII) and allow Greek banks to achieve their goals.

Its analysis concludes that Greek banks will achieve sustainable ROTE equity ratios of 8%, ie 1-2 percentage points lower than the banks’ budgets. However, their valuations do not reflect this improvement, which is why the British bank is updating its estimates of both the profitability of the systemic banks and the target prices and upgrading Alpha Bank and Piraeus Bank to “buy”. a recommendation he already gives and maintains for Eurobank and National Bank.

More specifically, as HSBC points out, it is improving its forecasts in the light of the Recovery Fund and we forecast a 5% compound annual growth rate (CAGR) of the loans serviced by 2026. This may not be enough to offset the multiple headwinds in the NII , contrary to banks’ budgets, but believes that indirect growth benefits and favorable market conditions in terms of supply and asset quality could lead to a strong recovery in profitability and thus increase ROTE medium-term forecasts by 40 basis points and at 8.0%.

Forecasts for higher profitability and capital, due to capital enhancement actions and better NPE pricing, lead to 18% higher target prices on average. Despite the re-rating of the shares of Greek banks in the last year, HSBC still estimates that the estimated value index for 2022 P / TBV value of Greek banks, which stands at 0.46x, does not reflect the profitability and dividend distribution prospects.

In addition, he says, the strong macroeconomic environment will allow banks to make NPEs reductions at favorable prices and thus have stronger capital ratios. Thus, it upgrades Alpha and Piraeus to buy and confirms the buy for NBG and Eurobank, which remains HSBC’s “favorite” trade as its higher valuation is justified due to its superior profitability.

In this context, it raises the target price for Alpha Bank to 1.40 euros from 1.20 euros before, it also raises the target price for Piraeus to 1.95 euros from 1.64 before, raises the price- target for Eurobank at 1.30 euros from 1 euro before as well as for NBG at 3.55 euros from 3.40 euros before. Thus, it sees an increase of 27% for Alpha, 36% for Eurobank and Piraeus and 35% for the EIB, in relation to the current prices on the board.

HSBC expects core operating profit to reach 28% in terms of compound annual growth rate (CAGR) between 2020 and 2024 as: fall of the NII, 2) the cost of CoR risk will be reduced by almost half thanks to the de-risking efforts and the favorable formation of NPE.

Thus it increases its profitability estimates for 2021, 2022, 2023 by 3%, 7% and 7% respectively, thanks to higher commissions and lower CoR, which brings HSBC forecasts 15% above average market forecasts. (consensus) for 2022.

According to the HSCB, Greek banks appear to be attractively valued at a 45% discount compared to banks in the emerging markets of Europe, the Middle East and Africa (EEMEA), in terms of the 2022 P / TBV, despite the best ROTE index, adjusted for the highest risk premium and the weakest currencies in the EEMEA region. In addition, they are at a discount of about 40% compared to European banks despite the fact that they have corresponding ROTE levels. In terms of P / E ratios, the discount looks deeper and HSBC believes that the market should pay more attention to this measurement, at least for Eurobank and NBG.