Bank To Leverage Strong Capital Position For 2025 Initiatives

Key Takeaways

• Expansion of loans and reduction in securities support revenue growth, driving increased net interest income and improved asset utilization.
  
• Strategic management of capital and costs, coupled with anticipated lower inflation, bolsters financial stability and profitability.
  
• Declining profitability, increased loan loss provisions, and FX vulnerabilities signal potential challenges for Banco Macro's future revenue growth and asset quality.

Catalysts

Provides various banking products and services to retail and corporate customers in Argentina.

• Banco Macro is forecasting significant loan growth of 60% in real terms for 2025, which is expected to drive an increase in revenue and contribute to higher net interest income.
  
• The bank anticipates lower inflation in 2025, reducing net monetary losses, and thereby positively impacting net margins and overall profitability.
  
• Management expects an improvement in return on equity (ROE) to between 12% and 15% in 2025, driven by an increase in lending to the private sector, which is expected to enhance earnings.
  
• The bank plans to reduce its securities portfolio, using the proceeds and deposit growth to fund loan expansion, which should support revenue growth and improve the efficiency of asset utilization.
  
• With a strong capital position and plans to control expenses while increasing fee-based income, Banco Macro aims to maintain its net interest margins and overall financial stability, positioning it for enhanced earnings growth.

Banco Macro Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Banco Macro's revenue will decrease by 7.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.1% today to 21.6% in 3 years time.
• Analysts expect earnings to reach ARS 797.6 billion (and earnings per share of ARS 2026.94) by about March 2028, up from ARS 324.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.6x on those 2028 earnings, up from 19.7x today. This future PE is greater than the current PE for the US Banks industry at 10.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 24.69%, as per the Simply Wall St company report.

Banco Macro Future Earnings Per Share Growth

Risks

• Banco Macro's net income for fiscal year 2024 was 74% lower compared to 2023, and total comprehensive income was 83% lower, which could indicate declining profitability impacting earnings.
  
• There was a significant decrease in net operating income before general, administrative, and personnel expenses, totaling 26% lower than in 2023, impacting potential revenue growth.
  
• Provision for loan losses increased 51% quarter-on-quarter and 9% year-on-year, suggesting potential challenges with asset quality that could impact net margins.
  
• Interest income decreased substantially by 34% in fiscal year 2024 compared to 2023, primarily due to lower income from interest-bearing assets like government securities, reducing revenue streams.
  
• FX income dropped 91% year-on-year, which alongside currency depreciation, indicates foreign exchange vulnerabilities that could affect future earnings.

Valuation

• The analysts have a consensus price target of ARS15163.0 for Banco Macro based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ARS18960.0, and the most bearish reporting a price target of just ARS11500.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ARS3692.6 billion, earnings will come to ARS797.6 billion, and it would be trading on a PE ratio of 23.6x, assuming you use a discount rate of 24.7%.
  
• Given the current share price of ARS10000.0, the analyst price target of ARS15163.0 is 34.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.