Home Business Banks and ECB rate hikes, JP Morgan indicates Unicredit among the most advantaged and triggers double promotion on the title

Banks and ECB rate hikes, JP Morgan indicates Unicredit among the most advantaged and triggers double promotion on the title

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Unicredit is increasingly popular with analysts who are waiting with growing optimism for the details of the new plan by Andrea Orcel arriving on Thursday 9 December. After the breakdown of negotiations with MPS, the brokers are looking at the possible moves that the group in Piazza Gae Aulenti will put in place to give new impetus to growth. Orcel’s intent should be to move towards growth and moving away from the era of restructuring that characterized the previous Mustier management.

Last in order of time to promote the Unicredit title were those of JP Morgan, with the recommendation passed from neutral to overweight and the target price from 12 to 15 euros, with a potential upside of almost 35% from current levels. The US home business focuses on one factor in particular, namely the outlook on the interest rate front. Markets are pricing in a rate hike in 2023, but the extent of the upcoming hikes is underestimated, according to JPM. The American investment bank expects ECB rates to rise by 0.25% in September 2023 and by 0.5% in 2024. And Unicredit is listed as one of the most sensitive banks to interest rate movements. JPM indicates + 13% EPS for every 50 bp rate hike. JP Morgan also expects a higher remuneration of shareholders through buybacks and dividends with a total payout ratio of 11.6% in the period 2022-24.

Now among the analysts monitored by Bloomberg those who say buy on Unicredit are 66.7%, while 26.7% say hold and only 6.6% are sell. The average target price indicated is € 13.75, or 22% above current levels.

Since the beginning of the year Unicredit is the best among the banks of the Ftse Mib with + 48% compared to around + 30% of the Euro Stoxx Banks index.

What to expect from the plan

The first rumors about the contents of the Orcel plan indicate a new round of cuts coming. The Bloomberg agency last week anticipated the possibility of cuts for about 3 thousand units which should concern both Italy and abroad, in addition to the 3,900 that have yet to be implemented in the bank’s previous strategic plan. It should still be leave on a voluntary basis, to be implemented through early retirement and with the provision of new hires.

Also last week analysts of Deutsche Bank added the Unicredit stock among their top picks, noting how the bank in Piazza Gae Aulenti is a story of “self-help through the reduction of the complexity of the group, the acceleration of revenue growth and the increase in the return on capital,” with the purchase and sale of shares at a significant valuation discount “.

In terms of financial targets, Equita SIM expects the new index plan to generate revenue dynamics driven by the commission component, which – after the excellent performance of 2021 – could maintain a solid growth path (2020-24 CAGR 4%), also thanks to the rationalization of commercial agreements in asset management and bancassurance. “On the other hand, we expect that, despite a positive dynamics on the disbursement front and a progressive reduction of the negative impact caused by excess liquidity, the NII will return to 2020 levels only at the end of the plan, considering the gradual disappearance of the contribution from TLTRO and a continuous rate compression on the back book ”, argues the Milanese sim. The dynamics of costs are expected to be under control, with further operational efficiencies (see Bloomberg rumor on cuts for 3 thousand units), offset by greater investments in innovation and digitalization (cost / income expected in the 55% area).

The Milanese sim estimates that Net income of Unicredit reaches 4.2 billion euros in 2024 from the 3.7 billion expected at the end of 2021, benefiting from lower systemic charges due to the lack of ex ante contributions to the SRF post 2023. Estimated CAGR of 1% of revenues in course of the plan reaching 18.2 billion in 2024, while operating profits are seen to rise by 2% on average per year reaching 8.2 billion in 2024. Finally, the dividend it is seen at € 0.171 per share compared to the € 0.187 indicated by the consensus. “In our opinion, Unicredit has ample room to strengthen its dividend policy through a payout ratio increase (currently at 50% between dividend and buyback) ”, remarks Equita which has a buy rating on UCG with tp at 13.6 euros.

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