IPS Division Will Strengthen Through Integration Of AXA IM And HSBC Germany's Wealth Management

Key Takeaways

• Strategic acquisitions and expansion in high-value segments should drive organic growth and bolster net profit margins.
  
• Efficiency measures and robust capital return policies aim to enhance earnings growth and shareholder value.
  
• BNP Paribas may face revenue and earnings pressure due to challenges in used car pricing, competition, regulatory impacts, and geopolitical uncertainties.

Catalysts

Provides various banking and financial products and services in Europe, the Middle East, Africa, the Americas, and the Asia Pacific.

• The CIB division aims to continue gaining market share in high-growth, high-value segments via cutting-edge platforms, which should bolster revenue growth and earnings.
  
• The extension of Personal Finance's strategic plan and the increased focus on high-return-notional equity businesses by 2028 are expected to enhance net margins for CPBS.
  
• Integration of recent acquisitions such as AXA IM and HSBC Germany's Wealth Management is expected to boost organic growth for the IPS division, potentially increasing overall revenue and enhancing net profit margins.
  
• Commitment to additional annual cost savings, increased efficiency measures, and the reduction in office space may improve net margins and support earnings growth.
  
• Continuing a robust capital return policy, including share buybacks and a 60% payout ratio, is designed to increase EPS and provide greater shareholder value.

BNP Paribas Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BNP Paribas's revenue will grow by 6.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 23.7% today to 23.9% in 3 years time.
• Analysts expect earnings to reach €13.4 billion (and earnings per share of €12.19) by about April 2028, up from €10.8 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 8.9x on those 2028 earnings, up from 8.1x today. This future PE is greater than the current PE for the GB Banks industry at 7.4x.
• Analysts expect the number of shares outstanding to decline by 0.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.14%, as per the Simply Wall St company report.

BNP Paribas Future Earnings Per Share Growth

Risks

• BNP Paribas faces challenges due to the ongoing normalization of used car prices, which could significantly impact revenue from its Arval business, a situation expected to persist into 2025. This is likely to decrease revenues in the specialized businesses.
  
• The competitive environment for Eurozone commercial banks, particularly in Belgium, remains tough, leading to lower current account deposits, which might affect net interest income. This could impact BNP Paribas' overall revenue growth prospects in '25.
  
• The regulatory headwinds related to Basel IV implementation and model updates are expected to result in a 100 basis points CET1 ratio impact through 2025 and 2026, potentially constraining capital deployment options for expansion. This could pressure net margins and earnings.
  
• Continued low returns on equity (ROE) from some divisions, such as Personal Finance, despite strategic repositioning plans, may delay overall earnings growth if these divisions fail to meet targeted improvements.
  
• Economic and political uncertainties, particularly in France and Turkey, could elevate the cost of risk beyond current forecasts, potentially affecting profitability and net earnings in future quarters.

Valuation

• The analysts have a consensus price target of €87.552 for BNP Paribas 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 €100.0, and the most bearish reporting a price target of just €70.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €55.9 billion, earnings will come to €13.4 billion, and it would be trading on a PE ratio of 8.9x, assuming you use a discount rate of 7.1%.
• Given the current share price of €77.75, the analyst price target of €87.55 is 11.2% 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.