BNP Paribas: Scaling Up The AuM

seekingalpha09-03

BNP reported a solid set of numbers. Q2 results were positively impacted (once again) by the corporate investment banking division.Strong strategic rationale in AXA IM acquisition.Higher 2024 outlook ...

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Q2 results were positively impacted (once again) by the corporate investment banking division.Strong strategic rationale in AXA IM acquisition.Higher 2024 outlook ...</p>\n\n<a href=\"https://seekingalpha.com/article/4718599-bnp-paribas-scaling-up-the-aum\">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: Scaling Up The AuM</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: Scaling Up The AuM\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-09-03 16:39 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4718599-bnp-paribas-scaling-up-the-aum><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>BNP reported a solid set of numbers. Q2 results were positively impacted (once again) by the corporate investment banking division.Strong strategic rationale in AXA IM acquisition.Higher 2024 outlook ...</p>\n\n<a href=\"https://seekingalpha.com/article/4718599-bnp-paribas-scaling-up-the-aum\">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":"CRARY","symbol_name":"Credit Agricole SA","start_time":0,"source_url":"https://seekingalpha.com/article/4718599-bnp-paribas-scaling-up-the-aum","article_id":"2464822550","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1149546842/image_1149546842.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2464822550","pubTimestamp":1725352794,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"BNP reported a solid set of numbers. Q2 results were positively impacted (once again) by the corporate investment banking division.Strong strategic rationale in AXA IM acquisition.Higher 2024 outlook ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"CRARY":"Credit Agricole SA","BNPQF":"BNP Paribas","BK4207":"综合性银行","BNPQY":"BNP Paribas","CRARF":"Credit Agricole SA"},"translate_title":"法国巴黎银行：扩大资产管理规模","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BNPQF":1,"BNPQY":1,"CRARF":1,"CRARY":1},"content_text":"BNP reported a solid set of numbers. Q2 results were positively impacted (once again) by the corporate investment banking division.Strong strategic rationale in AXA IM acquisition.Higher 2024 outlook to priced in, combined with balance sheet flexibility and sustainable shareholders' remuneration. This is still a buy.   Cineberg Following our update on Crédit Agricole S.A. (OTCPK:CRARF)(OTCPK:CRARY), today we are back to comment on BNP Paribas (OTCQX:BNPQF)(OTCQX:BNPQY). Looking at the French banking sector, despite Light And Shadow, we maintained a Tactical Buy rating status on BNP. This was due to 1) higher financial forecasts, 2) incremental growth in the company's tangible net book value, and 3) a supportive capital return story with a yield > 10% (combining dividend and buyback). Since our last update, this proved to be the right investment call. In number, BNP share price increased by 18% with a total return above 26% (Fig 1).   Mare Ev. Lab Rating Update Fig 1 Earnings Results and Our Supportive Take The company closed Q2 with higher-than-expected net profit growth and a lower cost of risk. BNP Paribas reported €4.4 billion in profit before tax, with a 7% result above the company-compiled consensus estimates. The Group's top-line sales were also a beat; however, this performance was supported by the Global Markets division, driven by Equities in particular. At the aggregate level, BNP reported revenues of €12.27 billion with a plus 3.9% result compared to Q2 2023 (Fig 2). According to our calculation, approximately 80% of the beat was driven by the corporate investment banking segment. Thanks to the increase in deposits and the reduction in loans, the bank's financial structure is very solid. Despite a higher credit spread, the company maintained a low-risk cost at 33 basis points. For this reason, the group's net profit reached €3.39 billion, compared to consensus estimates of €2.9 billion. An average tax rate also supported this to 20.8%. According to the company's press release, this was due to \"an exceptionally low level reflecting a tax methodology change in the US, generating a one-off reduction in the tax expense recognized in Q2.\" BNP reported a CET 1 ratio of 13% on the balance sheet. The company also reconfirmed its 2024 targets with a >2% top-line sales growth, <40 basis points of cost of risk, and net income above last year's (which reached €11.2 billion).   BNP Paribas Q2 Financials in a Snap Source: BNP Paribas Q2 results presentation - Fig 2 Our team is still positive on BNP development for the following considerations:  Compared to Q1, the company's net banking income slightly decreased, but the gross operating margin was up. BNP's operating expenses increased by +4.2%; however, excluding the quarterly negative one-offs, the costs were up by only 3.5% vs. sales growth of 3.9% (Fig 3). This means there are 40 basis points of positive jaws effect. Compared to Crédit Agricole, the company has a better cost/income ratio (58.5% vs. 59.9%) and offers a higher downside protection on the balance sheet (CET 1 ratio of 13% vs. 11.95%); Our Q4 assessment saw BNP Paribas results \"over-reliant on corporate investment banking growth.\" That said, the CIB Q2 results were sustained (Fig 4), and if those targets are maintained, our forecasted numbers are likely to be materially stronger than guided. Thanks to supportive volume dynamics, we now believe that Prime Brokerage revenues can be sustained; In the last few years, European banks have outperformed the markets thanks to rising returns and improved capital distributions. As central banks will move on with cut rates, we are looking to groups that offer less NIM sensitivity. BNP Paribas has balance sheet flexibility and a sustainable distribution yield of ~10%. This is attractive in relative and absolute terms and potentially could offer a P/E re-ratings estimate; Still related to point 3) and to increase BNP commissions, the company recently communicated a key acquisition. In detail, the company decided to acquire 100% of AXA Investment Managers. The acquisition price was €5.1 billion, equivalent to a P/E estimate of 9.8x in 2028. The CET 1 impact is limited to 25 basis points. Here at the Lab, we believe this transaction makes sense as it would provide the Bank with a significant scale in the AuM with solid synergy potential. This bolt-on acquisition is consistent with our long-term view to scale up with the bank fee-income businesses and significantly increases the group’s earnings in the asset-gathering division. Looking at the AXA IM net income, profits reached €360 and €204 million in 2023 and H1 2024, respectively. AXA IM has a 69.8% cost/income ratio, which is pretty high. Therefore, there is potential for incremental savings.    BNP Paribas TBV and cost of risks evolution Fig 3   BNP Paribas revenue split Fig 4 Earnings Changes and Valuation Last time, we were already projecting a higher-for-longer interest rate environment; however, considering lower revenue growth from CIB and a higher cost of risk, we reduced the company's 2024 net profit. This is not the case anymore. Here at the Lab, we are not adjusting our internal model for BNP's latest acquisition, which is expected to be closed in mid-2025. In the analyst call, the CEO shared expectations for confidence for growth in French NII in H2 and beyond. As a result, we now guide an underlying top-line sales growth of 3% in 2024 and 4.5% in 2025. In addition, the company's 2024 net income appears set to beat, given the strong H1 print. In numbers, we now arrived at sales and profits of €49 and €10.8 billion, respectively. This is based on a cost-of-risk of 40 basis points and includes an additional 25 basis points of interest cut by year-end. Our net profit projections also benefit from the €1 billion cost savings program. According to our estimates, following the Q2 results, BNP has an NTM EPS of €10.5. Here at the Lab, we value BNP with an unchanged P/E of 6.5x compared to our EU coverage of 7x. This is due to BNP's 36% sales related to the CIB division (Fig 4). That said, higher EPS forecasts increase our derived price target from €65 to €68.25 per share. This valuation is also supported by a growing tangible net book value. BNP book value reached €88.5 per share (Fig 3), and by applying a 0.8x ratio, we derive a price of 70.8 per share. This reinforces our buy rating status. Risks There are downside risks to our target price that include 1) regulatory approvals from new Basel 4 requirements, 2) lower than anticipated CIB sales, and 3) operational risk (such as cybersecurity failure). In addition, BNP is exposed to French and sovereign risk in Europe, macro and political uncertainties, lower than anticipated interest rates decline, and changes to the shape of the yield curve. Conclusion BNP has a diversified business mix that provides resilient cash flow generation, with exposure to structural growth segments in specialized businesses such as Arval and Asset Gathering. The company trades at a discount versus its peers and offers a solid balance sheet with M&A options. For this reason, we confirm our buy rating.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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