The day is near when UniCredit, the bank led by CEO Andrea Orcel, will lift the veil on the accounts for the second quarter of the year. In fact, Piazza Gae Aulenti will be the first Italian bank to announce the quarterly report for the period between April and June, next Tuesday, 25 July. Expectations are positive, to the point that someone is already showing optimism towards the bank which continues to reward its shareholders with a shower of buybacks and dividends.
A promotion of the UCG-UniCredit share was announced in the last few hours by Andrea Lisi, analyst at Equita SIM. Lisi announced that the Milanese SIM has revised its price target upwards by 10%, to 27 euros per share, forecasting a 2024 P/TE of 0.68 times, corresponding to a ROTE in the 10.5% area.
Not only that: Equita has also improved its 2023 profit estimates by 3%, to 6.8 billion euro, also revising its 2024-2025 profit outlook upwards, by an average of 7%.
The buy rating on the stock was motivated by the following factors:
Continuous improvement of operational performance. Attractive valuations (2024E P/TE = 0.56x) in relation to ROTE, capital and asset quality. The rich remuneration for shareholders which in our opinion enjoys a good degree of visibility (30% of market capitalization, market cap, in the next two years).
Confidence therefore not only in the profitability of the Italian bank, but also in the prospects for remuneration in favor of the shareholders, which continue to be bright.
After a few days, the numbers of UniCredit’s number one rival bank, i.e. the Italian Intesa SanPaolo, will also be disclosed.
The quarterly reports of other big names in Italian credit will follow.
Intesa SanPaolo and the second quarter accounts. The assistance of the ECB and the technical analysis
Ftse Mib, the results calendar for the 2nd quarter of 2023
On June 20, it was the CEO of UniCredit Andrea Orcel himself who showed optimism about the possibility of continuing to reward stakeholders with more than tempting coupons, highlighting the attractiveness of UCG shares despite the rush of recent months and years.
Orcel had referred in particular to the fact that, despite the +136% rally reported in a time span of more than two years (since the arrival of the bankers’ Ronaldo in April 2021), the stock was also traded at a discount compared to the book value of the bank. And that therefore, “at a certain point, this factor would have been noticed, supporting the attractiveness of the title”.
So far, it must be said, both the dividends and the share trend have delighted shareholders and the markets. The same should be done by the quarterly expected on the market, and expected for next Wednesday 26 July.
In general, the median of the projections indicates total revenues of 5.64 billion euros (+26.4% y/y) and a net profit of 1.64 billion (+10.4%), against a CET1 ratio by 16.37%.
Also in this case, as already happened during the first quarter of 2023, the effect of the rate hikes launched by Christine Lagarde’s ECB on the profitability of Piazza Gae Aulenti will be written in black and white on the balance sheet, in particular under the heading of NII, net interest income or interest margin. Andrea Lisi of Equita SIM sees a net margin, for UniCredit, of 3.4 billion euro: a value up by 4% on a quarterly basis, and by 38% on an annual basis. Thus, writes the Milanese SIM, it also estimates the consensus of analysts.
As for revenues, the figure is slightly higher than the consensus 5.6 billion euros of 5.7 billion, down 4% on a quarterly basis, but up 18% on an annual basis.
Net income is forecast at 1.9 billion euros, while operating profit is anticipated to be 3.4 billion, down 6% on a quarterly basis, up 39% year on year, and against 3 .3 billion of the consensus.
Provisions are expected to grow by 300 million euros, or 30 basis points.
In the note, Equita announced that it had revised upwards its earnings estimates for the period 2023-2025, citing the very factor that is supporting the quarterly reports of all Italian banks, specifically, and of the euro area in general. It is still the NII factor, or the interest margin, expected at a higher value. To a “minor extent”, the revised outlook is explained by the “higher fees”, which however remain at a lower level than UniCredit’s guidance for 2023, and by the slightly lower cost of risk “CoR”.
But how long will the NII’s bullish effect on earnings last?
Lisi expects that the peak of the interest margin will be reached in 2023 and that a contraction will therefore occur in the period 2024-2025, starting from the assumption, he points out, of “a reduction in the commercial spread due to a progressively higher deposit beta (in area 45% by 2024)”.
Before then, specifically in the second quarter of this year, the expected strong financial results will, according to Equita, give “further visibility on the achievement-exceeding of the 2023 net profit guidance”, expected at a value exceeding 6.5 billion of Euro. Indeed, Equita SIM believes that, in the second quarter, the deposit beta “should have remained at particularly low levels (deposit beta in Italy in the 10% area)”.
“In terms of volumes – reads the preview released today by the Milanese SIM – we believe that the second quarter does not show particular signs of discontinuity, with a substantially stable trend in deposits and slightly decreasing loans”.
Positive indications also as regards the bank’s liquidity which, according to Andrea Lisi, should not have been affected in a particularly negative way by the “recent repayment of the TLTRO tranche”, i.e. the repayment of those loans at subsidized rates that the ECB has more than an opportunity disbursed to banks in the Eurozone. In fact, the LCR liquidity metric should have remained at 163% in the first three months of 2023.
And this is an indication of good omens for the entire Italian banking sector, given the fear that Italian banks themselves could be particularly vulnerable in the face of the need for all banks in the euro area to repay those loans at rock-bottom rates which they had benefited in the past with the ECB’s TLTRO programme.
Italian banks and TLTRO: ECB pulls the plug here too
TLTRO: beware of Italian banks with ECB move
On the other hand, as regards the dynamics of commissions, a slight decrease on an annual basis, equal to -4%, is still estimated for this item of the balance sheet, “due to the absence of commissions on current accounts and a lower origination of loans”.
Equita also forecasts that operating costs have remained under control, with C/I in the 40% area and that in the quarter there should have been “no deterioration in terms of asset quality, with default rates remaining at extremely low levels”.
Consequently, Equita’s expectations are for “a CoR in the 30bps area (consistent with the guidance of 30-35bps for the full year, even if in this regard the management has stated that it sees room for upside)”.