Launching Snappi Digital Platform By Mid-2025 Will Unlock New Customer Segments

Key Takeaways

• Significant loan growth and fee growth in bancassurance and asset management are expected to drive revenue and improve net margins.
  
• Digital banking expansion and cost efficiency initiatives are set to enhance earnings and support strong shareholder returns.
  
• Heavy reliance on innovative financial structures and deposit strategies may pressure net margins if cost control and loan growth projections are not effectively managed.

Catalysts

Provides banking products and services in Greece and internationally.

• Piraeus Financial Holdings anticipates significant loan growth, aiming to increase its performing loan book by €12 billion by 2028. This is expected to drive future revenue growth.
  
• The company projects fees to continue growing strongly, particularly in the areas of bancassurance and asset management. The increased contribution of fees is expected to improve net margins over time.
  
• Piraeus plans to achieve substantial cost efficiency, maintaining a cost-to-core income ratio at 30%, which is among the best in the European market. This efficiency is likely to enhance net margins.
  
• The introduction and expansion of Snappi, Piraeus' digital banking platform, by mid-2025, is expected to tap into new digital banking opportunities and customer segments, contributing to future earnings growth.
  
• Piraeus aims to maintain strong capital ratios, with a total capital ratio expected to reach approximately 21% by 2027. This solid capital base can support projected earnings growth and allow for substantial capital return to shareholders.

Piraeus Financial Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Piraeus Financial Holdings's revenue will grow by 1.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 40.2% today to 41.1% in 3 years time.
• Analysts expect earnings to remain at the same level they are now, that being €1.1 billion (with an earnings per share of €0.92). However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €1.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.9x on those 2028 earnings, up from 6.2x 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 grow by 0.17% 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.

Piraeus Financial Holdings Future Earnings Per Share Growth

Risks

• The foreclosed assets portfolio remains sizable, necessitating innovative structures for derecognition, which could lead to further provisioning needs, thereby impacting net margins.
  
• Cost projections assume a stable cost base despite a 2% inflation forecast, which could pressure operating margins if cost control measures are not effective.
  
• Unforeseen capital depletion risks, such as those from potential acquisitions like Ethniki Insurance, might interrupt payout ratios, affecting net profit distribution and earnings.
  
• Dependency on sustaining strong funding conditions may become challenging if market dynamics shift, as evident from substantial reliance on deposit beta assumptions for controlling net interest margins.
  
• Potential slow transfer of reperforming loans back to the balance sheet due to undefined commercial strategies, which could affect achieving the projected loan growth, thereby impacting expected net earnings.

Valuation

• The analysts have a consensus price target of €5.937 for Piraeus Financial 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 €7.25, and the most bearish reporting a price target of just €4.13.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.8 billion, earnings will come to €1.1 billion, and it would be trading on a PE ratio of 8.9x, assuming you use a discount rate of 11.0%.
• Given the current share price of €5.29, the analyst price target of €5.94 is 10.9% 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.