Following the Northern Lights … Intesa Sanpaolo’s profitability, capital and financial metrics seem closer to Nordic banks than to southern European banks, generally considered to be competitors of the Italian credit institution. Thus Azzurra Guelfi, an analyst at Citi, in a note today on Intesa Sanpaolo on which she confirmed the buy rating and the 3 euro target price. At the moment the share is worth € 2.2405 on the stock exchange and rises by 1.77%.
Intesa Sanpaolo’s Rote (return on tangible equity) is above both that of Italian banks and that of large euro-zone banks, but slightly lower than that of Nordic banks. While Ca ‘de Sass performs better than the Nordic banks in terms of revenues / assets (1.90% Intesa against 1.45%). The gap, explained Azzurra Guelfi, “mainly derives from cost efficiency and asset quality. If Intesa Sanpaolo were to catch up with its Nordic competitors in terms of cost / income, Rote would increase to 13.4% in 2024, above the our estimate at 12%, and any cost of risk lower than 10 basis points would imply about 0.7 percentage points more Rote. ”
So “even if the efficiency gap were to be closed with the Nordic banks, with some improvement in asset quality, Intesa Sanpaolo’s Rote could significantly increase above our base scenario”, underlined Azzurra Guelfi, recalling that the bank led by Carlo Messina will present a new plan in February 2022. The Citi expert expects an increase in profitability, thanks to the focus on the savings business, on efficiency and credit quality, and a higher return on capital, supported by a strong capital position. The main risks include the developments of the Covid pandemic and Italian politics.
“We expect Intesa Sanpaolo’s next plan to offer greater benefits in terms of efficiency and risk reduction, as well as revenue, with a focus on return on capital. We estimate that the institute’s cost / income ratio will improve to around 46%. in the coming years and we see the potential for greater cost savings, such as the recently announced agreement to reduce the workforce, and synergies from the Ubi Banca acquisition. We also anticipate a further reduction in NPLs from an already low: around 4% in the first nine months of the year, thanks to provisions in the fourth quarter to facilitate de-risking, with a cost of risk at around 35bp. In addition, we expect a Rote of 13% in 2025 “, he continued. Citi expert.
To support profitability and valuation, the savings business (AM, PB and insurance), still reports Azzurra Guelfi, represents approximately 45% of Intesa Sanpaolo’s profit. This can benefit the profitability of the group (high Rote, lower capital allocation) and valuation (higher multiple). Intesa Sanpaolo boasts among the highest% commission on revenues in Europe and within the CEE group and below average. With this in mind, the expert has estimated an average annual growth rate of commissions of + 3%.
As for capital return opportunities, Intesa Sanpaolo has a strong capital buffer with respect to both the regulatory (around 460bp in 2022) and management (120bp) objectives, together with a high Rote and a low Npl ratio, all supporting the return capital (100% payout, 12% dividend yield, 80% cash dividend and the rest buyback, higher than what is currently indicated by Intesa Sanpaolo and expected by the market).
The bank indicated that the future return on capital will be the result of a minimum capital target, a payout ratio and that, in addition to the usual cash dividend, other options could be evaluated. “Every 10% more payout and about -15bp of capital. We also update the earnings per share for the buyback, with an average increase in the eps estimates of about 5%”, concluded Azzurra Guelfi who at the end of the year Intesa Sanpaolo expects a net profit of € 4.264 billion (€ 1.462 billion in 2020) and a dividend of € 0.16 per share (yield of 7%) seen to rise in 2022 to € 0.22 per share (yield of 9 , 7%) against a net profit of 5.177 billion and in 2023 at 0.25 euro per share (yield of 11.1%) against a net profit of 5.723 billion. (All rights reserved)

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