European Investments And Acquisitions Will Open New Opportunities

Key Takeaways

• EU investment initiatives and strategic acquisitions are expected to drive revenue growth and asset management enhancements for BNP Paribas.
  
• Cost efficiencies and share buybacks could strengthen net margins and EPS, aided by cross-selling and improved interest income.
  
• Elevated credit risk, challenging macroeconomic conditions, and regulatory changes threaten BNP Paribas's net margins, capital ratios, and future revenue growth.

Catalysts

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

• European governments' increased investment initiatives, such as Germany's €1-1.5 trillion plan and the EU's €800 billion readiness program, are expected to enhance BNP Paribas' revenue growth via increased funding and borrowing opportunities.
  
• The acquisition of AXA IM and the HSBC Wealth Management business in Germany should significantly boost BNP Paribas' IPS division, enhancing revenue growth and asset management capabilities.
  
• The normalization of the Eurozone yield curve is anticipated to benefit the revenue trajectory of BNP Paribas' commercial banks, supporting net interest income and margins.
  
• Efforts to increase cost efficiencies, with projected cost savings of €600 million in both 2025 and 2026, should improve net margins and earnings over the coming years.
  
• The approval of a €1 billion share buyback program and a policy distribution of 60% could increase the earnings per share (EPS) growth, supported by expected revenue contributions from cross-business cross-selling.

BNP Paribas Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BNP Paribas's revenue will grow by 6.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 23.2% today to 25.4% in 3 years time.
• Analysts expect earnings to reach €14.2 billion (and earnings per share of €12.21) by about May 2028, up from €10.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €15.7 billion in earnings, and the most bearish expecting €12.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.3x on those 2028 earnings, up from 7.8x today. This future PE is greater than the current PE for the GB Banks industry at 6.9x.
• Analysts expect the number of shares outstanding to decline by 0.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.71%, as per the Simply Wall St company report.

BNP Paribas Future Earnings Per Share Growth

Risks

• The increased credit risk due to the potential economic downturn and elevated uncertainties in global markets could negatively impact BNP Paribas's net margins if these risks materialize.
  
• The acquisition of AXA IM may result in a higher-than-expected capital impact, affecting the bank's capital ratios and potentially constraining future revenue growth.
  
• The challenges in the macroeconomic environment, including the impact of U.S. tariffs, might lead to slower-than-expected revenue growth, particularly affecting the corporate and investment banking divisions.
  
• The potential cost increases related to acquisitions and restructuring activities could offset any expected cost savings, thus impacting net margins and profitability.
  
• A declining CET1 ratio due to regulatory changes, such as FRTB, or potential miscalculations concerning the bank's capital requirements could impact BNP Paribas's ability to maintain resilient earnings growth.

Valuation

• The analysts have a consensus price target of €87.856 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 €72.1.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €56.0 billion, earnings will come to €14.2 billion, and it would be trading on a PE ratio of 8.3x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of €74.29, the analyst price target of €87.86 is 15.4% 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.