2021 objectives more and more demanding
The group’s third quarter results came broadly in line with expectations. However, the top-line momentum did not show the expected acceleration needed to enable the group to meet its ambitious long-term financial targets. As the current global and domestic business climate is not expected to be particularly supportive in the coming quarters, this puts earnings projections at risk in our view.
06 Nov 18
Confirmed guidance in spite of slightly disappointing quarterly performance
The quarter was characterised by an increased cost of risk and a limited expansion of assets under management penalised by adverse market moves. However, management reiterated its short- and long-term guidance.
01 Aug 18
Accelerated NPL deleveraging
First quarter trends were in line or ahead of the business plan. The deal with Intrum has confirmed that ISP’s NPLs are properly covered and enabled the group to deleverage bad loans ahead of plans and to materialise gains on its servicing platform.
16 May 18
Strong efficiency gains ahead
Quarterly underlying trends were in line with expectations. The group used extraordinary gains to increase the NPL coverage ahead of the disclosure of its 2018-21 business plan. The latter sets aggressive financial targets with a €6bn net profit objective for 2021, corresponding to a 14.6% RoTE. Such a stronger-than-expected profitability recovery is articulated around strong cost savings, representing around 15% of the pro forma 2017 cost base.
06 Feb 18
Reduced capital consumption
The group released a globally good set of quarterly results. Indeed, if the quarter saw a strong net interest margin squeeze driven by excess liquidity and hedging, it also enjoyed record volume-driven fee income generation, cost control and ongoing cost of risk normalisation. Last but not least, the group managed to reduce its RWA intensity. Management was unable to address market concerns about the potential impact of ECB’s quantified provisioning guidelines. However, we understand it shares our view (see our related note) that any extra provisioning would correspond to hidden reserves.
07 Nov 17
Paving the way for an upbeat new business plan
The group posted underlying results in line with guidance, confirming ongoing top-line expansion, strong cost control and benign asset quality trends. However, the latter will not translate into a normalisation of the cost of risk this year as management intends to create upbeat conditions for its next business plan to be disclosed along with the full-year results. The contribution of the Venetian banks will be EPS neutral this year and management ruled out any extra dividend. Hence, on an underlying basis, one should probably expect the group to post profits only slightly ahead of the €3.4bn full-year cash dividend commitment.
01 Aug 17
Positive outcome for Venetian banks
The EU has agreed a full State/taxpayer backstop for the Venetian banks in exchange for the resolution of the two troubled banks and the sale of good assets to ISP for a symbolic one euro. ISP’s management secured all the necessary guarantees against any future losses. The equity consumption and the restructuring charges will be covered by the State through a subvention. ISP, as a shareholder of the Atlante fund, will be wiped out but the exposure is pretty limited and has already been largely provisioned. The group is strengthening is positions in Italy’s wealthiest regions for free but prefers to point out its pivotal role in avoiding a painful liquidation.
26 Jun 17
Strong momentum to continue
The group posted a strong set of results characterised by a record level of commissions, efficiency gains and supportive asset quality trends. Management will disclose its new Business Plan after the release of FY results but it is already confident that the group will be able to improve its pre-provision profit margin further and fully normalise its NPL rate by 2019. This confirms that the top-line is strongly geared to interest rate hikes (€1.1bn on a 100bp parallel shift) and it will continue to enjoy aggressive development in wealth management and P&C insurance in a context of its weakened competitors. Coupled with ongoing cost control, the group targets a 45% cost to income ratio. Management confirms that it feels comfortable with the group’s lower than average coverage on Unlikely-to-Pay loans, especially given the first signs of recovery in the real estate market.
09 May 17
Record fee income generation, modest NPL coverage catch-up
The quarter was characterised by a record fee income generation and good cost control which more than offset ongoing net interest margin pressure. The group benefited from non-recurring gains to modestly increase its coverage on Unlikely-to-Pay loans, which remains notably below the market’s standards in our view. Management reiterated its €3.4bn cash dividend commitment for this year, which will be easily fulfilled as it is confident in the group’s ability to grow its earnings.
03 Feb 17
Unexpected interest in Generali
Following press rumours of a joint offer with Allianz on Generali, the group issued a statement in which it confirmed it is examining such a combination among other deals submitted by its advisory banks. In the meantime, Generali has acquired a 3% stake in ISP, which, according to the rules limiting cross-shareholdings in Italy, will prevent ISP taking a minority stake without Generali’s agreement, leaving no other option than making an offer on more than 60% of the insurer’s capital.
25 Jan 17
Solid underlying performance but potential lack of NPL coverage
The quarter showed good top-line resilience and cost control, and strong asset quality trends. On the other hand, it was also marked by an elevated provisioning effort to raise the coverage on unlikely-to-pay and overdue loans confirming a potential coverage issue. The full-year dividend commitment is already more than covered when including the €895m gain on SETEFI and Intesa Sanpaolo Card to be booked in Q4.
04 Nov 16
Waiting for troubled banks' bailout
Following the stock’s sharp underperformance translating into a stressed valuation, we have decided to reassess our forecasts and valuations. There is little doubt that the market turmoil will have immediate consequences in terms of revenue generation. On the other, it is not guaranteed in our view that asset quality trends have to be questioned. We see as very likely that the pending solutions to backstop troubled regional banks and BMPS will not repeat the mistake made with the Atlas fund that involved both ISP and UCG thus creating a dangerous systemic loop. If they also avoid involving them through the resolution fund, that would be good news even if the upcoming October referendum could continue to weigh on the relative valuation.
08 Jul 16
Superior profitability and growth potential intact
Like other wealth management oriented groups, ISP’s first quarter top-line performance was impacted by the market’s turmoil. However, the visibility on revenue growth for the next couple of years remains strong even if the fee income guidance for this year will not be met. The quarter demonstrated the group’s ability to absorb a revenue weakness through cost flexibility. Last but not least, the asset quality normalisation was ahead of plan, translating into a cost of risk already below the objective set in the 2017 business plan. Management considers that the market underestimates the stabilisation power of the Atlante fund which is seen as a game changer. The limited impact of the group’s investment will be more than offset by the boost provided by the disposal of the payment and card businesses.
02 Jun 16
Management does not share the market's concerns
Quarterly results were hit by extraordinary and seasonal factors. The underlying trends and the capital position remained strong which led the group to increase the cash dividend payment promise by 20%. The €3.0bn dividend commitment for this year has been reiterated while management considers that the visibility on the commercial and asset quality momentum is strong and that the Italian economy recovery will likely surprise on the upside. Last but not least, it considers that NPL coverage concerns are totally misplaced.
16 Feb 16