BNP Paribas Q4 Earnings: Maintaining A Tactical Buy

seekingalpha02-16

Soft Q4 with BNP Paribas over-reliant on corporate investment banking growth.Future targets are attractive, but we are less optimistic. That said, the bank lowered and postponed the Return on Tangible...

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That said, the bank lowered and postponed the Return on Tangible...</p>\n\n<a href=\"https://seekingalpha.com/article/4670806-bnp-paribas-q4-earnings-maintaining-tactical-buy\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>BNP Paribas Q4 Earnings: Maintaining A Tactical Buy</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBNP Paribas Q4 Earnings: Maintaining A Tactical Buy\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-02-16 09:08 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4670806-bnp-paribas-q4-earnings-maintaining-tactical-buy><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Soft Q4 with BNP Paribas over-reliant on corporate investment banking growth.Future targets are attractive, but we are less optimistic. That said, the bank lowered and postponed the Return on Tangible...</p>\n\n<a href=\"https://seekingalpha.com/article/4670806-bnp-paribas-q4-earnings-maintaining-tactical-buy\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4207","symbol_name":"综合性银行","start_time":0,"source_url":"https://seekingalpha.com/article/4670806-bnp-paribas-q4-earnings-maintaining-tactical-buy","article_id":"2411509295","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2411509295","pubTimestamp":1708045697,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Soft Q4 with BNP Paribas over-reliant on corporate investment banking growth.Future targets are attractive, but we are less optimistic. That said, the bank lowered and postponed the Return on Tangible","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4207":"综合性银行","BNPQF":"BNP Paribas","BNPQY":"BNP Paribas"},"translate_title":"法国巴黎银行第四季度收益：维持战术买入","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BNPQF":1,"BNPQY":1},"content_text":"Soft Q4 with BNP Paribas over-reliant on corporate investment banking growth.Future targets are attractive, but we are less optimistic. That said, the bank lowered and postponed the Return on Tangible equity.BNP Paribas offers a total yield of >10% with a safe balance sheet. The tangible net book value per share is increasing, and our valuation is confirmed.   Chesnot/Getty Images NewsFollowing our update on the Italian banks (Intesa Sanpaolo and UniCredit), we are back to comment on BNP Paribas (OTCQX:BNPQF)(OTCQX:BNPQY). In our last update, we saw Light And Shadow, and post-Q4 results, the company's share price declined significantly. BNP’s pre-provision profit fell by 15%, driven by 4% weaker revenues across 10 out of 12 divisions and slightly higher costs. Looking at the Q4, the pre-tax profit also missed consensus by 9%. Post Q3 results and aligned with management guidance, we project a cost-saving target of 2% and anticipate a loan loss rate of 33 basis points. Looking at the actual results, operating expenses were down by 1%, and the cost of risk was better than anticipated. Here at the Lab, we foresee a CET 1 ratio of 13.4% for 2024, providing ample room for capital distributions. Indeed, BNP is a robust institution, with management reaffirming a 60% profit payout. As a result, our previous DPS projections indicate a dividend of €4.6/4.7/5.3 for 2023/2024/2025 (Fig 1). This translates to a yield of 8%, and when factoring in BNP's buybacks, the total yield reaches 10.2%. 2023 DPS was confirmed, and considering the buyback, we reaffirmed our previous total yield indication of 10%. BNP Paribas FY 2023 Financials in a Snap Fig 1 BNP Fiscal Year Results In 2023, revenue growth exhibited robust performance, surging by 3.3%, while operating expenses demonstrated a commendable reduction of 1.0%. The group achieved a positive jaws effect. Thanks to its prudent and proactive risk management, the risk cost remains low, driven by structural improvements in the risk profile over the past decade. The financial structure stands solid, and the trajectory of the Common Equity Tier 1 ratio aligns to reach 12% post-implementation of the new CRR3 regulation. Furthermore, the disciplined redeployment of capital sustains the acceleration in growth. For the entirety of 2023, revenues totaled €45.87 billion, including the extraordinary negative impact of -€938 million due to changes in TLTRO terms and conditions decided by the European Central Bank in Q4 2022, as well as an exceptional impact of -€125 million from provisions for litigation booked in Q2 2023, both recognized in the Corporate Center. The financial landscape continues to evolve, and prudent management remains critical to sustained growth. Excluding Bank of the West disposal, BNP's net income reached €10.9 billion compared to the €9.8 billion achieved in 2022. The tangible net book value per share evolution is a crucial consideration affecting our valuation. TNAV increased by 10.6% to €87.6 versus the 2022 level. Here at the Lab, one of our key takeaways in BNP investment was related to BNL (BNP's Italian branch). The Italian division recorded a net result of €100 million in the fourth quarter, down 9.6% compared to the previous year. This decline was due to increased operating costs (+9.2%), exacerbated by labor cost trends following the collective contract renewal (retroactive to July 2023). Additionally, BNL saw a 4.4% decrease in loans compared to 2022 (net of non-performing loans). While customer loans remained stable, loans to businesses declined. That said, Wall Street was disappointed with postponing the 12% RoTE target. BNP Paribas moves this achievement from 2025 to 2026 (Fig 2). BNP Paribas outlookFig 2 Changes in Estimates In our assessment, even if we project higher-for-longer interest rates, BNP Paribas revenue growth targets are heavily geared toward Corporate and Institutional Banking. With the combination of an interest cut in mid-year and considering a higher cost of risk (40 basis points compared to a loan loss of 33 basis points), we are reducing the company's 2024 net earnings. That said, the company confirmed its €1 billion higher net interest income thanks to higher loan yields. In numbers, we arrived at revenue and earnings of €46.7 and €9 billion, respectively. Our cost-of-risk target is set on the company's guidance. Therefore, our CET 1 ratio moved from 13.4% to 13%. In our estimates, we arrived at a 2024 EPS of €8.5. Cross-checking BNP numbers, we are below the company's outlook, and to match its EPS growth (+12% each year until 2025), we should imply at least an additional €2 billion in sales. Valuation and Risks If we priced in BNP Paribas forecast, the company trades at ~5.0x 2025 P/E with a 24% discount to the EU sector. Our team values top-tier EU banks with a 6.5x P/E target and 0.8 Price-to-Tangible Net Asset Value (P/TNAV). The company trades at a P/E of 6.12x and a P/TNAV of 0.6x. The CEO is optimistic about BNP Paribas' revenue outlook and confirmed a positive view in growing market share. That said, our valuation is derived from our 12-month forecasted numbers. With a P/E of 6.5x and EPS of €8.5, we derive a valuation of €55.25 per share. With a P/TNAV of 0.8x and a book value growth of 8%, we arrived at a net asset value per share of €75.6 (Fig 3). Blending our two valuation methodologies, BNP Paribas' buy target is set at €65.4 per share, maintaining a tactical buy. Key downside risks include weaker revenue growth and regulatory risks. In addition, we should mention lower-than-expected interest rate development and dilutive acquisitions. BNP Paribas book value per shareFig 3 Conclusion Profit growth and RoTE acceleration depend on revenue growth. Even if we are optimistic about higher rates for longer, BNP Paribas' EPS growth seems too aggressive. BNP’s valuation remains reasonable, but our EPS estimates are below the company's outlook; The company's total yield is above 10% in 2024. Valuing the leading French bank with a blending methodology of P/E at 6.5x and 0.8x P/TNAV, we reaffirm our buy rating with a price of €65 per share (down from €75).  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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