On February 4, Intesa Sanpaolo will present the fifth industrial plan since its inception in 2007. Looking back at the previous four Mediobanca Securities, it has noticed a common trait over the last 15 years: an ever-increasing scale also through domestic mergers and acquisitions to support profitability. of shareholder remuneration.
Regardless of the different macro contexts that the bank has had to face during these years, Intesa Sanpaolo, Mediobanca observed, has aimed at an annual remuneration of the shareholders of 6-9% through a Roa (the profitability in relation to the resources used to carry out its assets) of 0.8-0.9% or a Rote (return on tangible equity) of approximately 15%. Unlike the first two, the institution has kept its return on capital pledges in the last two plans, with € 3.4 billion in dividends on 2019 earnings only postponed due to the ECB’s ban on distributing dividends.
Assuming that the new business plan 2022-2025 follows the previous ones, the bank should indicate a continuous focus on shareholder remuneration and a profit target of 8-9 billion, with the “unlikely contribution” of major domestic M&A (Carifirenze, Venetian banks , Ubi Banca) given the now “maximized” scale in Italy.
Continuity vs Growth. Mediobanca has proposed two alternative scenarios that maximize the remuneration of Intesa Sanpaolo shareholders, aiming for a fully loaded Cet1 capital ratio of 12% post Basel IV and an 8 billion profit in 2025 with a 2022 profit guidance of over 5 billion of Euro. The first “Continued” scenario involves a “mid-single digit” average compound annual growth rate of underlying earnings and a payout ratio of 85%, supporting an average annual dividend yield of 9%.
This would be reflected in a 2025 adjusted price / profit multiple that would converge from 11x to less than 9x and a tangible price / capital multiple of 1x for a Rote of 9-11%. The “Growth” scenario, discounting 8 billion in profit by 2025, would instead reflect a 20% profit cagr, allowing for a 90% payout ratio and supporting an average annual dividend yield of 12%. The valuation would change radically: p / e 2025 by about 6.5x and Rote by 15%. “These examples indicate how expected profitability will be the key to determining the next investment case on Intesa Sanpaolo,” said Mediobanca.
Both scenarios assume that Intesa Sanpaolo’s fully loaded Cet1 2021 of 13.5% converges to 12%, after the results of Basel IV arriving in 2025. “Let’s see the distribution of dividends, approximately -5 pp, payout of 85 % in the “Continuous” scenario, more than offsetting the organic generation of profit, +4.5 pp, with deferred tax assets, DTA, lower that almost offset the erosion of around 80bp from Basel IV, -50bp of Cet1 from regulation (Eba and IFRS17 directives, ed) and -30bp from the AT1 coupons. We would consider 12% a minimum level “, specified Mediobanca which cut the 2021 estimates and, vice versa, increased those for the period 2022 by + 6-13%. 2024 reflecting the further staff cuts announced in the third quarter of 2021, lower loan loss provisions (40-45bp),lower systemic charges and savings on financing costs.
“We see a risk on the consensus estimates regarding the interest margin”, warned Mediobanca according to which, however, Intesa Sanpaolo is a good bank in a positive macroeconomic environment. “We see it maintaining its current risk / reward profile in our” Continued “scenario, ensuring a high-digit dividend yield. More aggressive earnings growth,” Growth “scenario, is necessary to increase the appeal of the valuation of Intesa Sanpaolo, probably in light of stronger revenues on volumes, cagr of over 2%, on rates or commissions, cagr of 2% “, concluded Mediobanca which, pending the new industrial plan, raised the target price to 2.6 euros and the neutral rating on the Intesa Sanpaolo share confirmed, down on the stock market by 0.64% to 2.5585 euros at the moment. (All rights reserved)
