Robust Capital And Romanian Growth May Boost Earnings, But Russian Challenges And Polish Legal Issues Threaten Profitability

Key Takeaways

• Reducing Russian exposure and optimizing regional capital are expected to boost earnings stability and margins by managing risks and operational costs.
  
• Strong capital and liquidity positions, along with growth in other regions, suggest potential for revenue and earnings enhancement despite geopolitical challenges.
  
• Raiffeisen Bank International faces challenges from geopolitical tensions, regulatory issues, and economic weaknesses that threaten revenue stability, profitability, and market performance.

Catalysts

Offers banking services to corporate, private customers, and institutional customers.

• Raiffeisen Bank International's progress in reducing its business exposure in Russia could potentially alleviate geopolitical and operational risks, which may improve future earnings stability and enhance net margins.
  
• The bank's stable liquidity coverage ratios and an increasing CET1 ratio, even after assuming potential loan growth, suggest a robust capital position that might support future revenue expansion and potentially lead to higher earnings.
  
• Positive loan growth in networks such as Romania indicates an opportunity for revenue enhancement, which, coupled with potential asset development, could drive revenue growth beyond the shrinking effect of the Russian assets.
  
• The ongoing measures to improve operational efficiencies, such as reducing loans and deposits in Russia and optimizing capital usage across regions, are expected to maintain or improve net margins by managing operational costs effectively.
  
• Anticipated market improvements in 2025 across various regions, alongside lower inflation and interest rates, may provide a conducive economic environment for revenue growth and margin expansion, potentially boosting the bank's earnings.

Raiffeisen Bank International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Raiffeisen Bank International's revenue will decrease by -4.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 26.2% today to 21.0% in 3 years time.
• Analysts expect earnings to reach €1.6 billion (and earnings per share of €4.62) by about December 2027, down from €2.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €2.3 billion in earnings, and the most bearish expecting €1.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.6x on those 2027 earnings, up from 2.8x today. This future PE is lower than the current PE for the GB Banks industry at 13.1x.
• Analysts expect the number of shares outstanding to grow by 0.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.42%, as per the Simply Wall St company report.

Raiffeisen Bank International Future Earnings Per Share Growth

Risks

• Raiffeisen Bank International faces continued challenges in Russia, including significant delays in their planned exit strategy and the persistent risk of geopolitical tensions, which could impact its overall revenue stability and profitability.
  
• Net interest income trends have shown a slight decline, and the anticipated sensitivity to potential rate cuts in multiple markets could exert further pressure on future earnings.
  
• Operating expenses have increased by 6% year-over-year, impacting net margins and indicating potential inefficiencies or economic pressures that could deteriorate profitability.
  
• The ongoing legal and regulatory issues in Poland, including Swiss franc mortgage-related provisions, are expected to continue posing a significant drag on profitability, potentially affecting net margins negatively over the next several years.
  
• Economic weakness, particularly in regions tied to Germany's performance, coupled with potential unexpected geopolitical developments, pose risks to both revenue growth and margins, reflecting macroeconomic uncertainties impacting core markets.

Valuation

• The analysts have a consensus price target of €21.48 for Raiffeisen Bank International 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 €25.0, and the most bearish reporting a price target of just €16.25.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €7.4 billion, earnings will come to €1.6 billion, and it would be trading on a PE ratio of 5.6x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of €18.91, the analyst's price target of €21.48 is 12.0% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.