Digital Expansion Into Romania And Leadership Initiatives In Serbia Will Drive Future Success

Key Takeaways

• Addiko Bank's strategic market entry into Romania and performance boost in Serbia aim to enhance revenue growth and earnings through expanded lending and leadership initiatives.
  
• Operational excellence and innovative partnerships are expected to improve efficiency, reduce costs, and fuel revenue growth via new consumer lending products and digital advances.
  
• Geopolitical and economic uncertainties, regulatory interventions, and competitive pressures threaten profitability by impacting net margins, earnings, and revenue growth at Addiko Bank.

Catalysts

Provides various banking products and services in Croatia, Slovenia, Serbia, Bosnia and Herzegovina, Montenegro, Austria, and Germany.

• The market entry into Romania, based on Addiko Bank’s digital consumer business model, is expected to offer significant growth opportunities in a fast-expanding consumer lending market, which could positively impact revenue growth via increased loan volumes.
  
• Plans to reignite performance in Serbia with a new leadership team and targeted initiatives are anticipated to boost the bank’s local performance, enhancing revenue and earnings by increasing consumer and SME business.
  
• The completion of Addiko's acceleration program and subsequent initiatives to improve operational excellence could lead to better efficiency and cost reduction, thereby potentially increasing net margins.
  
• Expansion into new partnerships and innovation in product offerings, particularly in consumer lending and digital ecosystems, could lead to stronger revenue growth by accessing more customers and offering higher-margin products.
  
• Management’s commitment to a robust risk management strategy, including maintaining a stable NPE ratio and adequate NPE coverage, is likely to enhance future earnings stability by reducing risk-related losses.
  

Addiko Bank Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Addiko Bank's revenue will grow by 8.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.4% today to 18.8% in 3 years time.
• Analysts expect earnings to reach €66.0 million (and earnings per share of €3.41) by about April 2028, up from €45.4 million 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 6.9x on those 2028 earnings, down from 8.6x today. This future PE is lower than the current PE for the AT Banks industry at 8.5x.
• Analysts expect the number of shares outstanding to grow by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.41%, as per the Simply Wall St company report.

Addiko Bank Future Earnings Per Share Growth

Risks

• The shareholder situation, including unsuccessful takeover bids and ongoing regulatory scrutiny, has caused distraction and uncertainty, potentially impacting staff morale and operational focus, which could affect the bank's net margins and earnings.
  
• Higher funding costs and ECB rate cuts, coupled with regulatory restrictions on rates and fees, are likely to compress net interest margin (NIM) and net interest income, thereby impacting future revenue generation.
  
• The market demand challenges in the SME segment and competition leading to price reductions pose risks to loan growth and yield, which could impede revenue and profit growth targets.
  
• The suspension of dividend payments due to ECB recommendations indicates existing regulatory interventions that may limit shareholder returns and investor attractiveness, affecting earnings and shareholder equity value.
  
• Uncertain geopolitical and economic conditions, including inflationary pressures and additional banking taxes in operating countries, are likely to increase operational expenses and reduce net margins, impacting overall profitability.

Valuation

• The analysts have a consensus price target of €20.4 for Addiko Bank based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €352.0 million, earnings will come to €66.0 million, and it would be trading on a PE ratio of 6.9x, assuming you use a discount rate of 5.4%.
• Given the current share price of €20.3, the analyst price target of €20.4 is 0.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.