Cost Efficiency And Client Satisfaction Will Support Future Performance

Key Takeaways

• Société Générale focuses on improving operational efficiency and disciplined growth to enhance profitability and shareholder returns.
  
• A shareholder-friendly approach combines cash dividends and share buybacks, supported by strong performance in French Retail Banking.
  
• Regulatory changes, market division growth concerns, restructuring costs, and macroeconomic challenges could pressure Société Générale's earnings, margins, and revenue growth.

Catalysts

Provides banking and financial services to individuals, corporates, and institutional clients in Europe and internationally.

• Société Générale has committed to improving its operational efficiency, targeting a reduction in the cost-to-income ratio from 69% to below 66% by the end of 2025. This focus on cost discipline alongside revenue growth is expected to enhance net margins and profitability.
  
• The company plans to maintain a CET1 capital ratio above 13% through 2025, allowing for potential excess capital distributions via share buybacks and dividends. This disciplined capital management could improve earnings per share and shareholder returns.
  
• A strategic focus on profitable, disciplined growth is expected to drive superior business outcomes. This includes maintaining stable expenses while enhancing commercial momentum and client satisfaction across its major divisions, positively impacting revenue and net margins.
  
• Société Générale’s commitment to a balanced mix of cash dividends and share buybacks, alongside proactive capital management, signals a shareholder-friendly approach that could support future earnings per share growth.
  
• The French Retail Banking segment is seeing renewed growth momentum with gains in net interest income and increased market share in investment products and life insurance. This is likely to positively impact revenue and contribute to the improvement of net income and returns on equity.

Société Générale Société anonyme Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Société Générale Société anonyme's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.8% today to 19.7% in 3 years time.
• Analysts expect earnings to reach €5.6 billion (and earnings per share of €7.61) by about March 2028, up from €3.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €7.3 billion in earnings, and the most bearish expecting €3.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.5x on those 2028 earnings, down from 9.8x today. This future PE is about the same as the current PE for the GB Banks industry at 7.5x.
• Analysts expect the number of shares outstanding to decline by 0.08% 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.

Société Générale Société anonyme Future Earnings Per Share Growth

Risks

• Concerns about the impact of regulatory headwinds, such as the potential for changes in capital requirement regulations, could lead to increased capital costs and impact earnings.
  
• Questions about the lower-than-expected growth in the Global Markets division compared to peers raise concerns about capital allocation and risk management, potentially affecting revenue momentum.
  
• The impact of rising costs associated with the continued restructuring of financial operations, especially if cost savings do not keep pace, could pressure net margins.
  
• The uncertain macroeconomic environment may lead to subdued growth in key lending markets like mortgages, affecting revenue growth prospects.
  
• Uncertainties regarding the eventual cost and legal implications related to the restructuring or revaluation of acquired businesses, such as LeasePlan, pose risks to both earnings stability and capital allocation strategies.

Valuation

• The analysts have a consensus price target of €43.311 for Société Générale Société anonyme 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 €55.0, and the most bearish reporting a price target of just €31.7.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €28.4 billion, earnings will come to €5.6 billion, and it would be trading on a PE ratio of 7.5x, assuming you use a discount rate of 7.1%.
• Given the current share price of €42.87, the analyst price target of €43.31 is 1.0% 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.