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Another solid set of results BCP has posted another solid set of results with revenues coming in 5% above consensus and BNPPE estimates and an improving asset quality profile. Key operating lines - NII, fees and costs - came totally in line with consensus forecasts. Below PPP level, BCP had lower loan loss charts as the bank benefitted from an out-of-court settlement of litigation in Mozambique. Capital was once again very strong at 15.4% (vs 15.1% for consensus), building 47bps QoQ. Management committed to dividends distributions equalling a 30% payout ratio which we view as a step in the right direction. Asset quality was quite solid in the quarter with the stock of NPEs declining 4% QoQ and coverage improving 5pp to 82%. The NPE ratio came in at 3.4% improving 20bp QoQ. A guidance that provides upside for consensus The management team expects a mid-to-high single digit NII decline in Portugal and explained that the sensitivity in Poland is relatively low. Cost of risk should be a key driver in the guidance for flat PBT in 2024 in Portugal which clearly suggests substantial upside for consensus (which forecasts over 15% decline). In terms of distributions, the bank is using a working assumption of 50% payout for 2024 which is welcomed. In terms of CHF provisions 2024 is expected to be another strong year but the bank is convinced that in 2025 the CHF litigation risk will decline substantially which supports additional improvement in profits. We reiterate our OP rating and upgrade our TP slightly to EUR48c We are adjusting our estimates and cost of equity assumptions to be aligned with our relaunch on ITALIAN BANKS: When in Rome. We have marginally lowered our EPS for 2024/25e while increasing our 2026e EPS by 4%. The biggest change in our estimates is in capital performance and our estimate that BCP generates c60bp annually for 24-26e despite a 60% payout. Five topics to discuss with management team inside the note.
Banco Comercial Portugues Banco Comercial Portugues S.A.
The quarter continued to show impressive profitability levels despite the ongoing headwinds from the Polish CHF mortgage book. While profitability is expected to normalise next year, it will nonetheless remain at enviable levels.
NII drives a good PandL. Sizeable capital build helped by model approvals BCP published another strong set of results yesterday, beating consensus by 3% on NII, mainly driven by Poland. With fees in line, total revenues were also 3% ahead. Costs were also in line and provisions were a mixed bag, with lower LLP and higher other provisions. Poland probably also drove the higher tax rate than expected, with CHF loans not being tax deductible. But the spotlight should be on the balance sheet and capital. First, credit quality improvement is ongoing: NPEs decreased again this quarter (5% QoQ) and coverage was higher. While deposits were broadly stable QoQ, loans were down 2% in the quarter, which is slightly negative but not overly concerning. More importantly, BCP had an impressive c.90bps CET1 ratio build in the quarter to 14.9%, probably helped by model approvals in Portugal and strong organic trends. Continued positive headline trends and largely comforting capital Most lights are green for BCP coming off this 3Q23 update, as the NII beat should lead to positive consensus revisions for 2023. The main change in perception should however, come from capital. We expect BCP to update the distribution policy at 4Q23, and we increased our payout in 2023 from 30% to 40% and in 2024e from 40% to 50%. BCP said they are not considering MandA for now. NII outlook upgraded during the call On the back of its strong NII print, BCP upgraded its FY23 and FY24e guidance from high 30s and low 30s growth (both on 2022 basis) to high 40s to 50s and low 40s. Better capital than expected - we maintain our Outperform rating with a new EUR50c TP We have adjusted our numbers to include the latest NII trends and the strong capital build. This takes our FY24/25e estimates higher, to a new TP of EUR50c, implying c.75% re-rating potential. + Five key topics to discuss with management inside the note
The management confirmed that the net interest margin will start normalising in the second half of this year and that the CHF mortgage loan is likely to continue to require some residual provisioning efforts over the next two years. On the positive side, it now considers that the group’s mid-term sustainable RoE is back to the mid-teen territory or above.
A solid set of results... BCP 2Q23 results came in 25% ahead of consensus (and 21.5% ahead of BNPPEe). The higher-than-expected bottom line was driven by a 3% beat in NII, marginally lower provisions than expected and lower taxes both in Portugal and Poland. The loan book grew 1% QoQ but declined 1.3% YoY. Deposits were flat both QoQ and YoY. Credit quality performance was strong in the quarter, showing additional improvement, while coverage improved further. Additionally, restructuring funds declined 10% QoQ and foreclosed assets 13% in the quarter. TNAV per share is up 3.5% QoQ, underpinned by strong net profit generation. CET-1 ratio came in at 14%, improving 40bp QoQ. ... driven by Portugal and Poland The performance of NII in Portugal was 3% ahead of our estimates, growing 8% QoQ and an impressive 68% YoY. Other impairments were lower than expected, in line with the guidance provided by the CFO at 1Q23 results. Moreover, Polish NII was also ahead, driven by strict deposit cost control, which improved in the quarter, allowing the bank to remain profitable despite the top-up for CHF mortgage litigation. Mozambique was the only negative item in 2Q23 results, with NII under pressure on lower rates. We remain c35% ahead of consensus on stronger NII We think that consensus expectations for NII in Portugal look quite conservative at this stage after the solid performance delivered by the bank in 1H23. We think that there is material scope for upgrades, as 2H23 implicit NII points to c20% drop HoH, which looks excessively negative. Our NII forecasts are c14% ahead of consensus on average for the next three years. Upgrading EPS for 23-25e and TP. Outperform reiterated. Following 2Q23 results, we upgrade our EPS for 23e 7.5% on higher NII and lower taxes. We have also upgraded our EPS by c2% for 2024-25e, leading to our new TP of EUR46c. + Five topics to discuss with management inside the note
NII fireworks in Portugal... Millennium BCP''s 1Q23 net profit was 16% ahead of consensus, driven by a c7% beat in NII. This was largely explained by Portugal, where NII expanded 21% QoQ and 60% YoY. The impressive performance was driven by NIM expansion, which was up over 50bp QoQ. Costs were also 3% better than expected, both in Portugal and the international business, allowing a 15% beat to consensus at PPP. ''Other'' provisions in Portugal were the only negative item in the results. ...supported by solid capital build-up... ET-1 was 13.6%, up 105bp QoQ and exceeding our estimates by 20bp. The strong ET-1 print supports our view that BCP''s capital generation potential is strong and well above the performance delivered in the past couple of quarters. We think that the next debate will be the shareholder remuneration policy, which we think should already normalise in 2023e. We are increasing our pay-out ratio assumptions to 35% in 2023e, 45% in 2024e and 50% for 2025e and onwards. ...and conservative guidance that still leaves upside to consensus The key debate during the call was the outlook for NII for 2023e in Portugal. The management reiterated conservative guidance for 2023, pointing towards 20-25% YoY growth with some upside risk given the trends in terms of deposit costs. Our estimates are more constructive, pointing to 35% growth YoY in 2023e but reducing the growth potential in 2024e. Regarding ''other'' provisions, the management confirmed that ''other'' provisions in Portugal were impacted by some front-loading but reiterated guidance for the year of cEUR80-100m. Upgrading estimates and TP to EUR39c Following the impressive performance in the quarter, we have upgraded our estimates by 16% in 2023, led by better NII and lower costs. We have also upgraded our estimates by 4% and 2% in 2024-25e. Consequently, we upgrade our TP to EUR39c and reiterate our Outperform rating. + Key topics to discuss with management inside the note
The first quarter’s performance came largely ahead of the unambitious objectives set for 2024 (>10% RoE). However, the management does not seem to be ready to upgrade them yet, thus forcing us to stay on the cautious side until we get a better idea of the sustainability of the performance.
The group’s quarterly operating performance was in line with its 2024 objectives. The CHF mortgage book continued to weigh on the reported profits. However, the number of both new individual lawsuits and extrajudicial agreements peaked in Q2 and the cumulative provisions now cover 47% of the remaining €2.2bn loan book.
A 13% beat at the bottom line on better revenues Millennium BCP has reported EUR110m net profit, 13% ahead of consensus, supported by stronger recurrent revenues than expected. NII was 6% ahead of consensus at EUR604m, growing 8% QoQ and 43% YoY supported by all geographies but mainly driven by Portugal and Mozambique. Fee income was also stronger than anticipated, growing 6% QoQ and 3% YoY. Costs and provisions were in line with expectations, supporting an 11% beat to company compiled consensus at PBT level. Credit quality improved further in the quarter with a reduction of 30bp in the NPE ratio of the bank while coverage increased 2pp to 68%. Capital: from a weakness to a strength BCP capital was ahead of our estimates at 12.5% (vs. 12.2% BNPPEe). The bank built an impressive c. 120bps CET1 in the quarter, of which 56bps from organic generation alone, 15bp from restructuring fund sales and 31bp from securitisations. As we expected in our report MILLENNIUM BCP: Don''t dream it''s over) capital has gone from a weakness to a strength, which should allow the bank to normalise its shareholder remuneration in 2023. We expect a 30% pay-out for 23e which should normalise further in 24e and 25e. In terms of MREL requirement, BCP ended the year being compliant with the 2024 MREL level (27.7% of TREA), so that is another worry in the course of being cleared. Upgrading estimates and reiterating Outperform Following the strong results and the good capital print, we are updating our estimates for 2023e-25e, incorporating better revenue trends for 2023e while keeping almost unchanged our 24-25e revenue forecasts and improving our cost of risk after the solid performance delivered in credit quality in the year. Consequently, we are upgrading our EPS for 23e-25e by 2% on average and raising our target price to EUR37c (vs. EUR35c previously). We reiterate our Outperform rating on the back of a solid improvement in profitability driven by Portuguese NII and...
After a tough 2022... 2022 was not an easy year for BCP. The interest rate tailwinds in Poland were more than offset by political measures, leading to additional contributions to consumer protection schemes and credit holidays. Moreover, capital headwinds were persistent as the bank had to absorb the impact from the mark-to-market of the bond portfolio as well as other regulatory headwinds (minorities in Mozambique). ... a bright capital print to close the year... We expect BCP to close 2022 with a very solid capital print on 27 Feb. The strong PandL and capital performance of Bank Millennium in 4Q22, alongside the sale of the restructuring funds and the improvement in organic capital generation in Portugal, should take BCP''s ET-1 ratio 80bp higher than at Q3. The strong capital trend should continue as regulatory tailwinds kick in, potentially taking BCP''s ET-1 ratio from 11.4% in 3Q22 to 12.6% on pro-forma basis in 1Q23e, well above our previous estimates. ... and a promising profit outlook for 2023 despite Polish clouds BCP''s balance sheet is one of the most rate sensitive in Europe. The bank''s management of interest rate risk has seen it implement a cEUR14bn mortgage swap to reduce its rate sensitivity, albeit it has not removed it in full. We estimate domestic NII should grow low-teens in 2023e and should continue growing in 24-25e, with strong discipline keeping costs below inflation and cost of risk stable despite the economic uncertainty: we expect Portugal to deliver solid profits over 23-25e. We see Poland as the main source of concern, and we have increased our CHF provisions for 24-25e to reflect a run rate of cEUR80-90m provisions per quarter for the group. Above consensus and upgrading TP to EUR35c Despite our prudent stance, we are c20% above consensus for 23-25e, mainly on the back of strong domestic NII and resilient performance of revenues in Poland. We upgrade our TP to EUR35c and reiterate our Outperform rating.
A strong PandL... BCP has reported a Q3 net profit of EUR23m, much better than consensus''s expectation of a EUR9m loss and our estimates of a EUR4m loss, including cEUR304m negative one-offs from Poland. Operating trends were quite solid, supported by better revenues, a lower cost of risk and in-line costs, which allowed a solid beat to consensus on the bottom line. ... and positive surprise on capital The good PandL performance was matched by a positive performance on capital. ET1 ratio came in at 11.4% (11.8% pro-forma), 20bp ahead of our estimates. We see this quarter''s performance as a turning point in terms of capital that should dispel market concerns on the capital position of the bank. We expect BCP to be above 12% in 4Q22, thanks to solid profits and the sale of restructuring funds. A comfortable outlook for Portugal and encouraging in Poland During the call the management team reiterated the constructive outlook for NII in Portugal, which should grow mid-single digit in 2023 (which is marginally below our 7% forecast for 2023e). The bank expects the cost of risk in Portugal to remain around current levels c50bp-60bp for the coming quarters. Regarding Poland, Bank Millennium''s management team was quite reassuring during the call, suggesting that 3Q22 was the last quarter where the bank would report losses. Upgrading 2022-24e and reiterating Outperform We have upgraded our estimates materially for 2022e (+82% to reflect strong earnings across all geographies). Regarding 2023e and 2024e the improvement in profitability will come mainly from Poland. We have also incorporated higher costs in Portugal as negotiations with trade unions are likely to impact costs in 2023-24. Based on our new estimates, we upgrade our TP to EUR27c (vs. 25c previously) +key topics to discuss with management inside the note
While the group managed to keep its third-quarter results afloat despite increased provisioning on its Polish CHF-mortgage book, it could not avoid strong equity attrition driven by market moves. The management continues to refer to its 2024 financial objectives but it is unclear whether it remains committed to achieving them in a degraded macro-economic environment.
As expected, the group posted a slight profit loss in the Q2 driven by the accumulation of headwinds in Poland, a country known for not being friendly vis-à-vis banks. The third quarter will see additional extra losses from Poland.
The quarter enjoyed strong volume expansion and tight cost control but was depressed by a sharp rebound in the cost of risk in all geographies driven by the lack of provision recoveries.
The quarter enjoyed top-line resilience, further efficiency gains, and provision recoveries. The 10% 2024 ROE objective remains distant but looks achievable.
As expected, the Polish subsidiary announced new provisions connected with the legal risk on its CHF mortgage book. However, the provisioning effort remained elevated and could lead us to downgrade our full-year forecasts if management confirmed it will continue at an equivalent pace over the rest of the year.
As announced one month ago, the quarterly results continued to be depressed by extra provisions on the CHF mortgage book. The underlying operating performance was broadly in line with expectations. The CHF mortgage saga will remain a key driver of the share price evolution in the coming weeks.
Bank Millennium’s profit warning does not come as a surprise as management made it clear that extra provisions on the CHF mortgage book would follow. BCP’s net attributable exposure stands at €900m, corresponding to the upside potential we have on the stock before accounting for any related losses, thus confirming that the risk is largely priced in.
The quarterly performance was supported by strong Portuguese operations which enabled the group to absorb the extra provisioning efforts in Mozambique and Poland.
As warned in Q3, the Polish subsidiary decided to set aside more provisions to cover the pending legal losses on its CHF mortgage book. Like the PPI scandal in the UK, this story will probably last for a long time. On the positive side, losses are likely to be spread over several years and the subsidiary’s value accounts for a limited 13% of BCP’s market capitalisation.
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