Bank's Digital Focus Aims To Improve Efficiency, Yet Earnings Will Decline Amid Margin Pressures

Key Takeaways

• Strengthening capital formation and labor market growth is likely to boost corporate and consumer lending, increasing revenue through higher loan volumes and demand.
  
• Digital transformation and strategic capital flexibility aim to improve margins, enhance earnings, and potentially increase shareholder remuneration via share buybacks.
  
• Reduced capital flexibility, lower net interest income, loan growth reliance, and potential cost fluctuations may challenge National Bank of Greece's financial stability and shareholder returns.

Catalysts

Provides financial products and services primarily in Greece, Cyprus, North Macedonia, Romania, Bulgaria, Luxembourg, the Netherlands, and the United Kingdom.

• The expected strengthening of gross fixed capital formation, driven by high capacity utilization, business profitability, and increased public investment including RRF funds, is likely to boost corporate lending. This is projected to positively impact revenue by increasing loan volumes.
  
• The continued strengthening of the labor market, with rising employee compensation and declining unemployment, is expected to support consumer lending. This should contribute to revenue growth through increased loan demand from households.
  
• The buoyant residential real estate market, characterized by rising house prices and limited new apartment availability, is anticipated to drive mortgage lending. This is likely to increase revenue through higher mortgage origination.
  
• The bank's focus on digital transformation and technological investments is intended to enhance client experience and operational efficiency. This is expected to improve net margins by reducing costs and increasing fee-generating capabilities.
  
• Strategic flexibility in capital utilization, supported by a CET1 ratio significantly above internal targets, allows the bank to consider increasing shareholder remuneration. This has the potential to enhance earnings through an accelerated approach to DTC amortization and the possibility of increased payout ratios, including share buybacks.

National Bank of Greece Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming National Bank of Greece's revenue will decrease by 1.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 46.4% today to 40.2% in 3 years time.
• Analysts expect earnings to reach €1.1 billion (and earnings per share of €1.18) by about February 2028, down from €1.3 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €1.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.3x on those 2028 earnings, up from 5.8x today. This future PE is greater than the current PE for the GB Banks industry at 6.2x.
• Analysts expect the number of shares outstanding to decline by 0.32% 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.

National Bank of Greece Future Earnings Per Share Growth

Risks

• The accelerated amortization of deferred tax credits (DTCs) could reduce capital flexibility, potentially impacting the bank's capital buffers and ability to sustain higher dividends or buyback plans, which could, in turn, affect the bank's shareholder returns. (Capital and shareholder remuneration)
  
• The expectation of a reduction in net interest income (NII) in 2025 due to lower Euribor rates could challenge the bank’s ability to maintain its profit margins, potentially affecting bottom-line earnings. (Net Interest Income and Profit Margins)
  
• While loan growth has been robust, any adverse changes in the economic outlook or GDP growth projections could impact loan origination, which is a key driver of the bank's future revenue, especially given the strong reliance on corporate lending. (Revenue and Loan Expansion)
  
• The upcoming voluntary exit scheme could increase short-term operational costs, potentially affecting operating expenses if not offset by improved efficiency or cost savings from reduced staffing levels. (Operating Expenses and Cost Management)
  
• The current economic environment and market dynamics could lead to fluctuations in the funding costs or deposit mix, which might negatively impact net interest margins over the next few quarters if not managed effectively. (Net Interest Margin and Funding Costs)

Valuation

• The analysts have a consensus price target of €9.905 for National Bank of Greece 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 €11.2, and the most bearish reporting a price target of just €8.44.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.7 billion, earnings will come to €1.1 billion, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 10.5%.
  
• Given the current share price of €8.34, the analyst price target of €9.91 is 15.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.