JP Morgan: Where is the investment story of Greek banks based?

Of Eleftheria Kourtali

The investment story of each of the four Greek systemic banks is analyzed by JP Morgan in a new report, examining their valuations and the prospects of their shares on the board of Athens Avenue, in the context of updating its estimates for all European banks for the total of 2022.

As he points out, it maintains the target price for Eurobank at 1.60 euros and the overweight attitude, for Alpha Bank at 1.5 euros and the overweight attitude, for Piraeus at 1.8 euros and the neutral attitude and for the National Bank at 4.50 euros and the overweight attitude.

The investment case of Alpha Bank has its roots in the potential of improving ROTE to 10% (by 2024 according to the administration), due to: 1) the reduction of the NPE index in low single digits, 2) the increase of loans with total net new disbursements of € 8 billion by 2024, 3) profits in supplies with about 10% average annual increase for the period 2020-2024, 4) further efficiency measures, reducing the cost base by 17% by 2024, and 5) organic or non-organic organic development of the Romanian franchise (or a possible exit from it.

Its shares failed to perform well after raising their share capital last year, with the current price hovering below the offering price. According to JP Morgan, this underperformance stems from the ongoing NPE cleanup process (which will be completed by the end of the year), with the underlying balance sheet improvement not yet seen, as well as visible guidance cuts for net interest income NII (from 1.3 billion euros for 2022 to 1.15 billion), partly due to the faster than planned reduction of NPE, but also due to higher pressure on financing costs and the slower expansion so far of the loan portfolio, raising questions about the initial NII 2024 target of € 1.4 billion, in particular in the context of the funds raised last year.

JPM forecasts are still more conservative than management guidance in 2023-2024, however it still sees Alpha Bank comfortably record ROTE 7.3% in 2024e (6% in 2022 and 7% in 2023). Current valuations at 0.36x P / TBV seem cheap on a relative basis and he believes that the market will start to develop more comfort with the investment case as the bank will reach a medium single digit NPE index by the middle of the year (from 13% at the end of 2021) and net credit expansion is accelerating.

THE Eurobank remains JP Morgan’s top choice in the medium term among Greek banks as it has the highest ROTE with contribution from the international franchise (> 30% of profits) as well as the real estate investment portfolio of € 1.4 billion which contributes to 5% of profitability. The group’s CET1 at 13.6% for 2022 is sound and the capital trajectory will henceforth be based largely on profitability rather than risk-weighted asset relief (RWA) or other capital measures and provides space for up to 30% annual dividend payment (5% dividend return in 2023).

Eurobank’s valuation at 0.52x in terms of P / TBV for 2023 (5.9x P / E) is at ~ 20% premium compared to other banks, but this is justified, in the view of JPM, and sees a further 73% uptrend.

The story of the fundamental figures of the National Bank continues to have the vote of confidence of JPM, especially thanks to the CET1 index of the group at 16.0% (fully loaded) for 2022, which is the best in the category not only in Greece but also in Europe, with € 750 million an additional CET1 that could potentially increase to € 2.2 billion through the AT1 / T2 version. It forecasts ROTE 8% in 2024 and 9.2% when adjusted for surplus capital.

End, as far as Piraeus is concerned, equipped with the capital it needs, reduced NPEs by 17.5 billion euros in just one year (from 24.4 billion euros in 2020 to 4.9 billion euros in 2021), it says, and then aims to improve its ROTE to an ambitious level> 12% by 2025 (10% by 2024). According to JP Morgan, compared to all the targets presented in the original Sunrise plan last year, the guidance seems milder for NII net interest income, but more ambitious in terms of fees and commissions as well as operating costs, supporting recent strong momentum. JPM sees Piraeus record 7.3% ROTE in 2024 after coupon payments (8.2% before coupon). The ROTE profile justifies> 0.5x P / TBV in a very conservative equity cost assumption of 14%, suggesting attractive long-term re-rating possibilities of the Piraeus share, as he emphasizes. At the same time, its smaller capital reserves justify a relative discount compared to other Greek banks and that is why JPM maintains a neutral stance at this point in the cycle.