EVO Banco Integration Will Result In Operational Synergies And Tax Benefits By 2025

Key Takeaways

• Strategic focus on loan book growth and balancing deposit costs may enhance revenue and stabilize earnings amid net interest pressure.
  
• Investment in technology and expansion in Wealth Management aims at bolstering revenue and net margins through efficiency and growth in fee income.
  
• Regulatory costs, economic fluctuations, and interest rate uncertainties may impact Bankinter's profitability, earnings growth, and revenue projections amidst their EVO Banco integration challenges.

Catalysts

Provides various banking products and services to individuals and corporate customers, and small- and medium-sized enterprises in Spain.

• Continued organic growth in loan book across multiple geographies, with mid-single digit growth expected in 2025, will likely enhance revenue growth through increased interest income.
  
• Technology investments improving efficiency and productivity, allowing cost-to-income ratio to remain low at 35-36%, potentially increasing net margins.
  
• Strategic focus on reducing deposit costs and repricing of corporate loan book may offset pressure on net interest income, stabilizing or slightly increasing earnings.
  
• Expansion in Wealth Management and fee-generating activities, retaining strong growth in fee income with high single-digit increase expected, contributing to overall revenue growth.
  
• Successful integration and merger plans with EVO Banco by 2025 could result in operational synergies and utilization of carryforward tax losses, positively impacting net income and earnings growth.

Bankinter Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bankinter's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 36.7% today to 33.1% in 3 years time.
• Analysts expect earnings to reach €1.0 billion (and earnings per share of €1.13) by about March 2028, up from €953.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €1.2 billion in earnings, and the most bearish expecting €909 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.3x on those 2028 earnings, up from 9.4x today. This future PE is greater than the current PE for the GB Banks industry at 7.8x.
• 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 8.19%, as per the Simply Wall St company report.

Bankinter Future Earnings Per Share Growth

Risks

• The integration of EVO Banco entails accounting adjustments and impairments that could introduce short-term challenges and uncertainties during the merger process with Bankinter, potentially impacting operating expenses and net earnings.
  
• The decrease in net interest margin due to fluctuations in asset yields and deposit costs could lead to pressure on net interest income, which is a significant source of revenue for the bank.
  
• Rising costs associated with regulatory adjustments, such as increased banking tax charges, could strain net margins and affect profitability despite strong fee income growth.
  
• Potential economic or market fluctuations in key regions like Spain, Portugal, and Ireland might impact loan book growth projections and customer activity levels, affecting revenue projections.
  
• Uncertainty surrounding future interest rate movements and the evolution of deposit and asset pricing dynamics could lead to challenges in maintaining stable margins and consistent earnings growth.

Valuation

• The analysts have a consensus price target of €9.406 for Bankinter 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 €12.5, and the most bearish reporting a price target of just €7.7.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.1 billion, earnings will come to €1.0 billion, and it would be trading on a PE ratio of 10.3x, assuming you use a discount rate of 8.2%.
• Given the current share price of €9.99, the analyst price target of €9.41 is 6.2% lower. 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.