Multiples are indicators that relate one series of variables referring to a single security in order to make it easily and quickly comparable with the respective competitors on the market. These indicators can be a useful tool for investors and a quick and easy way to calculate the intrinsic or fundamental value of a stock. In this article we focus on the multiples of the banking sector of Piazza Affari, in particular of the Ftse Mib.
The multiples of the Ftse Mib banking giants
The Ftse Mib is the reference index of the Italian stock market and within it has a strong presence of financial sector stocks, especially banks. There are 8 credit institutions that are part of the Ftse Mib: these are Intesa Sanpaolo, UniCredit, Banco Bpm, Mediobanca, Bper Banca, Banca Mps, FinecoBank and Banca Popolare di Sondrio. Banks continue to play a primary role, with an overall market cap of 163.8 billion and an incidence of 22.3% on the total (data as of 26 March 2024).
The following table shows the best-known multiples:
price/book value (P/BV) earnings per share (EPS) price/earnings per share (P/E) return on equity (ROE)
Title
Last price
Market Cap (€ mld)
P/BV
EPS
P/E
ROE
Intesa Sanpaolo 3.36 61.4 1.09 0.4 8.14 14.02 UniCredit 34.79 58.5 1.05 5.2 7.46 16.33 Banco Bpm 6.13 9.3 0.66 0.95 7.32 9.35 Banca Mps 4.19 5.3 0.53 1.63 2.57 23 Bper Banca 4.36 6.2 0.67 1.1 4.05 17.87 Mediobanca 13, 82 11.7 1.07 1.42 10.75 10.53 Bca Pop Sondrio 6.97 3.2 0.83 1.02 6.85 12.82
Source Bloomberg, elaborated by the FinanzaOnline Research Office; data updated as of 03/28/2024
Please remember that each individual company has its own peculiarities and, therefore, the selection activity cannot ignore the in-depth analysis of each individual investment theme.
Price multiples
As we have said, market multiples are used in comparative analysis with the aim of comparing the positioning of a company compared to its competitors. For simplicity we will distinguish them into multiples relating to the stock market price and in multiples relating to balance sheet data. The former are relationships between the market prices (quotations) of an equity instrument and a given balance sheet quantity. The most commonly used financial statement figures are profits and book value of equity. Price multiples are the most used by investors and allow you to quickly understand how the market views the company and what value it attributes to it at a given moment.
Il P/BV (price to book value) represents the ratio between the market value of a company’s equity and its book value. This multiple depends on the profitability of equity, expressed as ROE (Return on Equity). A high ROE usually corresponds to a high P/BV, and vice versa. P/BV is especially useful for comparing similar companies within the same industry that follow the same accounting principles. It is important to note that this multiple cannot be used to compare companies in different industries or with different accounting standards.
L‘EPS (earnings per share) represents a company’s net income divided by the total number of shares outstanding in a given year.
Il P/E (price to earnings) iIndicates how many times the share price reflects expected earnings. A higher P/E generally corresponds to higher expected earnings growth (EPS), while a lower P/E may indicate more modest expected growth or greater uncertainties about the predictability of future earnings. A low growth rate coupled with high P/Es should warn investors, while significant growth with low P/Es could attract traders.
Budget multiples
Unlike previous ones, i balance sheet multiples are not only used by investors for their asset allocation choices, but also and above all by the top management of the companies themselves to measure the health of the company and the management performance.
Il ROE (return on equity) it is an indicator of the profitability of a company’s equity capital, i.e. the ability to remunerate the risk capital invested by the shareholders or the owner. A high ROE is usually a positive sign for the company, as it indicates a greater ability to generate profits relative to the invested capital. The remuneration of risk capital over time can occur through increasing dividends or through value creation, which is reflected in the increase in the share price over time to the benefit of shareholders.
Finally, it should be noted that financial analysts also use multiples to calculate the so-called “target price” of a specific stock. In fact, among the best-known company valuation methods we find the comparison of multiples (P/E, EV/Ebitda or others, with a sample of comparable companies). For financial stocks, analysts usually compare ROE, cost of capital and P/BV (price to book value).