Digital Initiatives And UniCredit Partnership Will Improve Market Position

Key Takeaways

• Strategic investments in digital capabilities and human resources may enhance future growth and improve net margins.
  
• Partnerships and acquisitions could significantly boost earnings, EPS accretion, and long-term profitability.
  
• Defensive positioning in a low-rate environment, rising operating costs, and strategic execution risks could hinder Alpha Services' earnings and profitability growth.

Catalysts

Provides various banking and financial products and services in Greece and internationally.

• Alpha Services and Holdings is dynamically adjusting to the changing environment and investing heavily in digital capabilities and human resources, which could enhance future revenue growth and net margins.
  
• The company's partnership with UniCredit is expected to strengthen its wholesale offerings and expand to ECM and M&A. This strategic partnership could significantly bolster earnings.
  
• Alpha Services and Holdings plans to use a significant portion of profits for buybacks, aiming to deliver substantial earnings per share (EPS) growth.
  
• There is an expectation of substantial growth in performing loans and deposits, indicating potential future revenue growth and balance sheet expansion.
  
• The acquisition strategies demonstrated by the purchase of Flexfin and AstroBank are expected to provide EPS accretion and boost returns on capital, enhancing shareholder value and long-term profitability.

Alpha Services and Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alpha Services and Holdings's revenue will grow by 11.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.7% today to 38.1% in 3 years time.
• Analysts expect earnings to reach €949.3 million (and earnings per share of €0.48) by about March 2028, up from €549.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €852.2 million.
• 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, down from 9.7x today. This future PE is greater than the current PE for the GB Banks industry at 7.9x.
• Analysts expect the number of shares outstanding to decline by 1.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.96%, as per the Simply Wall St company report.

Alpha Services and Holdings Future Earnings Per Share Growth

Risks

• The bank's focus on defensive positioning despite falling interest rates could limit growth in net interest income, leading to plateaued earnings from this revenue source. (Net interest income)
  
• The cost pressures from delayed voluntary separation schemes, IT investments, and other seasonal expenses suggest potential increases in operating costs, which could undermine net margins. (Operating costs, net margins)
  
• A flat net interest income and potential pressures from lower rates and tighter spreads are expected, which could limit earnings growth despite offsetting factors like loan growth. (Net interest income, earnings)
  
• The strategic initiatives like acquisitions in Cyprus and other M&A activities carry execution risks and integration challenges, which could impact profitability if not managed effectively. (Earnings, profitability)
  
• The reliance on strategic partnerships, such as the one with UniCredit, while beneficial, also introduces risks if these alliances face any disruptions or fail to deliver projected benefits. (Fee income, earnings)

Valuation

• The analysts have a consensus price target of €2.569 for Alpha Services and Holdings 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 €3.2, and the most bearish reporting a price target of just €2.06.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.5 billion, earnings will come to €949.3 million, and it would be trading on a PE ratio of 8.3x, assuming you use a discount rate of 11.0%.
• Given the current share price of €2.3, the analyst price target of €2.57 is 10.5% 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.