Partnership With UniCredit And Calculated Loan Growth Will Enhance Profitability And Drive Future Growth

Key Takeaways

• Strategic investments and partnerships, along with improved asset quality, are set to enhance Alpha's revenue and profitability.
  
• Optimized capital management and increased dividend payouts reflect confidence in sustaining growth and rewarding shareholders.
  
• Reliance on volatile corporate loan growth and pressure on loan spreads risk impacting earnings stability and profitability amid economic and regulatory challenges.

Catalysts

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

• Alpha Services and Holdings anticipates a positive contribution from loan growth, reinvestments in its securities book, and lower wholesale funding costs, which would help sustain net interest income levels and positively impact future revenue.
  
• The partnership with UniCredit is expected to enhance Alpha's service offerings, leading to increased fee income from bancassurance, payments, and other financial services, thereby boosting earnings.
  
• The bank is actively focusing on improving asset quality by reducing its NPE ratio below 4%, which should lead to lower provisioning costs and increase profitability.
  
• Alpha's careful management of its capital position, including a growing CET1 ratio and successful deconsolidation of operations like Alpha Bank Romania, positions it well to leverage future organic and inorganic growth opportunities, leading to stronger capital generation and potentially higher dividends for shareholders.
  
• The company's strategic decision to increase its dividend payout ratio from 20% in 2023 to 35% in 2024 signals confidence in ongoing profitability improvements and capital generation, likely to enhance earnings per share over time.

Alpha Services and Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alpha Services and Holdings's revenue will grow by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 27.6% today to 42.0% in 3 years time.
• Analysts expect earnings to reach €948.6 million (and earnings per share of €0.43) by about January 2028, up from €483.3 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €658.0 million.
• 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 8.7x today. This future PE is greater than the current PE for the GB Banks industry at 6.3x.
• Analysts expect the number of shares outstanding to decline by 1.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.47%, as per the Simply Wall St company report.

Alpha Services and Holdings Future Earnings Per Share Growth

Risks

• Alpha Services and Holdings' reliance on corporate loan growth, which tends to be volatile, could impact earnings stability and future revenue, especially if the global economic environment changes.
  
• The mark-to-market cost of risk hedging in preparation for declining interest rates could have adverse effects on net interest income should rates not decline as projected.
  
• Pressure on loan spreads due to reduced funding costs system-wide and improved client credit ratings could squeeze net margins, affecting profitability.
  
• The shift in deposit preferences away from time deposits towards other asset management products could impact net interest income if not managed carefully.
  
• Potential headwinds from regulatory requirements related to capital returns, including deferred tax credits (DTCs) and capital distributions, could limit the company's ability to adequately return profits to shareholders, impacting future earnings.

Valuation

• The analysts have a consensus price target of €2.41 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 €3.05, and the most bearish reporting a price target of just €1.9.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.3 billion, earnings will come to €948.6 million, and it would be trading on a PE ratio of 7.5x, assuming you use a discount rate of 10.5%.
• Given the current share price of €1.81, the analyst's price target of €2.41 is 24.8% 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.