Digital Disruption And Rising Costs Will Erode Margins

Key Takeaways

• Escalating competition from fintechs and big tech, alongside digital disruption, is undermining market share and the sustainability of core revenue streams.
  
• Persistent low interest rates, rising regulatory costs, and volatility in investment banking operations are constraining profitability and making earnings growth unpredictable.
  
• Accelerating digital growth, disciplined cost management, diversified operations, and strong ESG integration position the company for resilient earnings and long-term expansion across multiple business lines.

Catalysts

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

• The rapid acceleration of digital disruption and fintech innovation is set to further erode Société Générale's market share and fee income in core businesses, as nimble competitors and neobanks continue to attract clients away from traditional banking-with negative consequences for the bank's top-line revenue growth and long-term earning power.
  
• A persistent low and negative interest rate environment in the Eurozone is likely to keep net interest margins under pressure, limiting Société Générale's ability to grow core profitability, particularly as loan production in lower-risk categories like home loans contributes little to net income.
  
• Escalating regulatory and compliance costs, including those tied to ESG mandates and anti-money laundering, are expected to drive up operating expenses for years to come, resulting in higher cost-to-income ratios and subdued net margins even as the group pursues cost-cutting initiatives.
  
• Ongoing weak performance and revenue volatility in key investment banking and trading divisions increase the likelihood that earnings will remain unpredictable, with restructuring charges and asset disposals further constraining future revenue expansion, hindering the bank's ability to deliver sustainable earnings growth.
  
• Rising competition from big tech, neobanks, and scale-driven banking consolidation threaten Société Générale's long-term relevance, potentially leading to significant margin compression, rising loan loss provisions from deteriorating credit quality, and forcing the group into defensive mergers or strategic retrenchment that would depress return on equity and diminish investor returns.

Société Générale Société anonyme Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Société Générale Société anonyme compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Société Générale Société anonyme's revenue will grow by 2.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 17.0% today to 14.7% in 3 years time.
• The bearish analysts expect earnings to reach €4.1 billion (and earnings per share of €4.64) by about July 2028, down from €4.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 9.1x on those 2028 earnings, up from 8.9x today. This future PE is greater than the current PE for the GB Banks industry at 7.6x.
• Analysts expect the number of shares outstanding to decline by 0.72% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.3%, as per the Simply Wall St company report.

Société Générale Société anonyme Future Earnings Per Share Growth

Risks

• The company's accelerating digital growth through platforms like BoursoBank, which continues to acquire hundreds of thousands of new clients per quarter and deliver higher-than-expected deposit inflows, could expand the customer base and drive long-term recurring revenue upwards.
  
• Strategic execution on cost discipline, including sustainable, group-wide cost reduction initiatives and an improving cost-to-income ratio now trending well below targets, enhances operating leverage and may improve net margins and profitability over time.
  
• Strong diversification across businesses and geographies, combined with a robust CET1 capital ratio of 13.4%, positions the company to absorb macroeconomic shocks while maintaining healthy earnings and providing capacity for organic or inorganic growth, with potential for increased shareholder returns.
  
• Continued growth momentum in French retail, private banking, and insurance-with assets under management and life insurance outstanding each growing by 5–6% and home loan production up 115% year-on-year-suggests the company is capitalizing on favorable demographic trends, supporting revenue resilience and expansion.
  
• The bank's deep integration of ESG and sustainable finance into its core business, aligned with the global shift toward responsible investing, positions it to benefit from expanding demand for green financing and advisory services, resulting in potentially higher fee income and long-term topline growth.

Valuation

• The assumed bearish price target for Société Générale Société anonyme is €38.92, which represents two standard deviations below the consensus price target of €53.8. This valuation is based on what can be assumed as the expectations of Société Générale Société anonyme's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €63.54, and the most bearish reporting a price target of just €31.7.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €27.6 billion, earnings will come to €4.1 billion, and it would be trading on a PE ratio of 9.1x, assuming you use a discount rate of 7.3%.
• Given the current share price of €50.16, the bearish analyst price target of €38.92 is 28.9% lower.
• 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.