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UK CHALLENGER BANKS
16 Feb 17
We initiate coverage of the Challenger banks with BUY recommendations on Aldermore, OneSavings Bank, Shawbrook and Virgin Money, and SELL ratings on CYBG and Metro Bank. We particularly like the specialist lenders as they have avoided direct competition with large UK banks and offer high growth and returns at attractive valuations (helped by the fallout from the Brexit vote) of 2017E PE and P/TBV of 7.5 and 1.6 for RoTE of 23% compared to large UK banks on 18.4 and 0.9 for RoTE of 8%. Among the true challengers we prefer Virgin Money for its 2017E RoTE of 14% for P/BV of 1.1 but are not keen on CYBG as it reminds us of the low growth and returns and continual restructuring costs recently seen at large UK banks, nor Metro Bank for its exorbitant 2017E P/TBV of 3.9 for no profits. Our Top Pick is Shawbrook as it is the most specialised of the lenders.
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2016 profit strongly influenced by BSI bargain gain
15 Mar 17
Net result attributable to ordinary shareholders increased from CHF57m for FY2015 to CHF339m for FY2016. 2016 was influenced by some one-off effects such as the CHF531m contribution from the “IFRS bargain gain” on the BSI acquisition, subject to the final purchase price adjustment process. EFG said that standalone the underlying net profit was CHF91m in FY2016. BSI’s figures are consolidated from November 2016 onwards. Operating income was up by 4% to CHF722m for 2016 compared to 2015. Operating expenses rose by 14% to CHF690m in the same period. EFG said that reported profit was impacted by additional non-recurrent effects such as the BSI bargain gain, CHF170.5m post-tax impairment charge relating to past acquisitions, CHF36m of costs relating to the acquisition and integration of BSI and the CHF22m negative contribution from life insurance. Pre-tax profit was CHF339m for 2016 compared to CHF72.5m for 2015. Assets under management rose by 72% to CHF144.5bn at the end of 2016 due to the BSI consolidation. Net new money outflow was CHF0.5bn in 2016 on an EFG standalone basis. The Common Equity Ratio (CET 1) was 18.2% at the end of 2016 compared to 12.8% at the end of 2015. The dividend per share proposal is unchanged at CHF0.25 for FY2016.
BMN arranged marriage
15 Mar 17
Pressurised by the ECB, the FROB has announced that it considers a combination of Bankia and Banco Mare Nostrum (BMN), both controlled at 65%, as the best solution. In response, Bankia stated that it will perform its own analysis before envisaging submitting such a deal to its shareholders.
2016 figures in line, €1.05 DPS due to special dividend from the Heta gain
08 Mar 17
Preliminary pre-tax profit increased by 54% to €301m for 2016 compared to 2015 mainly due to a one-off gain of €123m related to Heta in 2016. Net interest income was down by 5% to €404m for 2016 compared to 2015. Loan loss provisions were €1m in 2016. Commission income declined by 43% to €8m in 2016. Net income from financial investments increased to €125m for 2016 compared a loss of €32m for 2015 as Q3 16 benefited from net income of €123m from previously-impaired receivables from Heta Asset Resolution AG (Heta). Administrative expenses declined by 4% to €198m for 2016 compared to 2015. The tax ratio was 35% for 2016 and led to tax expenses of €104m for 2016 compared to tax income of €35m for 2015. Net profit attributable to shares decreased therefore by 14% to €197m for 2016 compared to 2015. The Basel 3 fully phased-in core Tier 1 ratio was 19.0% at the end of 2016 versus 18.2% at year-end 2015. The dividend proposal per share increased from €0.43 for FY2015 to €1.05 for FY2016 including a special dividend from the Heta gain. Pbb confirmed its pre-tax profit guidance range of between €150m and €170m for FY2017.
Panmure Morning Note 07-03-2017
07 Mar 17
Shawbrook’s underlying FY2016 PBT of £93m (up 14% YoY) is 2% shy of consensus forecasts (cf. Panmure £94.1m) but the group has shown good underlying trends across the board. Customer loans grew by 22% YoY to £4.1bn, with NIM at 5.6% being better than PG forecast of 5.5%. Loan origination was up 14% to £1.9bn. Cost income ratio improved by 3.2ppt to 45.1% with the group aiming for 35% by FY2020. Credit quality improved in the 2H16 following breach of controls in 1H16 with cost of risk of c40bp in 2H16. Group underlying RoTE at 19.4% was 20bp better than our forecasts. Balance sheet was strong with TNAV increasing by 17% YoY to 152p and CET1 ratio was 13.3% (Cf. Panmure 13.3%). Overall these are a solid set of results and we believe that the bid by PE groups significantly undervalues Shawbrook and we are glad to see that the bid has been rejected by management. We maintain our BUY rating with the stock trading on reported P/TBV of 2.1.
Ongoing balance sheet clean-up
07 Mar 17
BCP reported stronger-than-expected quarterly results driven by non-recurring gains. The underlying operating performance was a new loss driven by ongoing provisioning efforts to raise the NPAs’ coverage rate. Management continues to target a 10% ROE in 2018 based on a below 75bp cost of risk and an 11% CET1 ratio. This is far higher than our above-consensus projections.
Once again a new strategy and a capital increase; new German hope?
06 Mar 17
Deutsche Bank released on Sunday, 5 March, the following key items regarding a capital increase and strategy moves. • Deutsche Bank intends to increase its capital from the issuance of new shares by around €8bn. Deutsche Bank expects to issue up to 687.5 million new shares with subscription rights to existing shareholders and with the same dividend rights as all other outstanding shares. The subscription period of the rights is expected to run through to 6 April 2017. Upon completion of the proposed capital raise, the Bank’s fully-loaded 31 December 2016 pro forma CET1 ratio would be 14.1%, and its pro forma leverage ratio 4.1%. • Up to €2bn of additional capital accretion is targeted in the next two years from asset disposals and a flotation of the minority stake of Deutsche Asset Management. • A simplified business model is targeted consisting of three business units: Corporate & Investment Bank, Wealth Management and Asset Management. • The Postbank sale is cancelled. Postbank and Deutsche Bank’s Private & Commercial Clients business will be combined into a new Wealth Management segment. • Corporate Finance, Global Markets and Global Transaction Banking are going to become part of an integrated Corporate & Investment Bank again. • Restructuring and severance costs are anticipated of c.€2bn, the majority of which is expected to be incurred in 2017-19. • Intention to decrease the adjusted cost base from €24.1bn (2016, after business disposals) to about €22bn (2018) and then to about €21bn (2021). • The bank will aim to reach a return on tangible equity of 10% in a normalised operating environment. • Management intends now to propose at the AGM in May 2017 to pay aggregate dividends of €0.19 per share for FY2016, including the shares to be issued in the announced capital raise. The bank intends to propose at least a minimum dividend of €0.11 per share for FY2017 and targets a competitive payout ratio for fiscal FY2018 and thereafter. • Marcus Schenck, CFO, and Christian Sewing, CEO of Germany and Head of Private, Wealth & Commercial Clients, have been appointed Deputy CEOs with immediate effect. Marcus Schenck will join Garth Ritchie in leading the new Corporate & Investment Bank in the course of the year.
Panmure Morning Note 02-03-2017
02 Mar 17
FY2016 PBT of £129m (up 36% YoY) is 3% ahead of consensus forecast (cf. Panmure £128m) with good underlying trends across the board. Loans grew by 22% YoY to £7.5bn, although NIM at 3.51% was 5bp shy of consensus. Loan origination was up 24% to £3.2bn. Cost income ratio improved by 7ppt to 44.6% with the group aiming for <40% by FY2017. Group underlying RoE at 18% was 1ppt better than our and consensus forecasts. Balance sheet was strong with TNAV increasing by 21% YoY to 153p and CET1 ratio was 11.5% (cf. Panmure 11.4%). Overall these are a solid set of results. We maintain our BUY rating with the stock trading on reported P/TBV of 1.5.