Bank Will Invest In Digital Platforms To Improve Customer Satisfaction And Reduce Costs

Key Takeaways

• Growth in the Irish economy and strategic market positioning are driving loan, deposit, and AUM growth, supporting revenue and earnings increases.
  
• Focus on digital innovation and operational efficiency, alongside capital distribution, emphasizes boosting shareholder value and improving net margins.
  
• Heightened uncertainty and competition, alongside financial challenges and cost-cutting needs, may pressure Bank of Ireland's revenue, margins, and operational efficiency.

Catalysts

Engages in the provision of banking and other financial services.

• Bank of Ireland is experiencing loan and deposit book growth driven by a stronger Irish economy and its market position, which is expected to support revenue increases and robust earnings growth.
  
• The bank anticipates a significant rise in assets under management (AUM) especially in its Wealth and Insurance business, with expectations for 30% growth in AUM over the next three years, which should boost fee income and earnings due to the capital-light nature of this income stream.
  
• The bank plans to achieve a return on tangible equity (RoTE) of over 17% by 2027 through continued operational efficiencies and effective cost management, impacting net margins positively.
  
• Continued investment in digital innovations and a new customer lending platform for small businesses and agricultural customers are expected to enhance revenue and customer satisfaction while potentially reducing operational costs, supporting higher net margins.
  
• Capital distribution plans, including share buybacks and dividends leveraging a growing CET1 ratio, indicate an emphasis on shareholder returns, which could contribute to an increase in earnings per share (EPS).

Bank of Ireland Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bank of Ireland Group's revenue will decrease by 0.3% annually over the next 3 years.
• Analysts are assuming Bank of Ireland Group's profit margins will remain the same at 33.7% over the next 3 years.
• Analysts expect earnings to reach €1.4 billion (and earnings per share of €1.66) by about May 2028, down from €1.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.0x on those 2028 earnings, up from 7.0x today. This future PE is greater than the current PE for the GB Banks industry at 6.9x.
• Analysts expect the number of shares outstanding to decline by 1.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.82%, as per the Simply Wall St company report.

Bank of Ireland Group Future Earnings Per Share Growth

Risks

• The potential risk of heightened uncertainty and evolving international trade policies could impact Ireland's economic growth, potentially affecting Bank of Ireland's ability to maintain strong loan and deposit growth, impacting revenue and earnings.
  
• Non-core charges, including provisions for U.K. motor finance and software intangible impairments, demonstrate underlying financial challenges which could strain future profits.
  
• The expectation of a decrease in net interest income due to lower average interest rates and ongoing corporate portfolio deleveraging may hinder revenue growth.
  
• Increasing competition in the Irish mortgage and banking market may pressure margins, impacting net margins and revenues if the competitive environment intensifies.
  
• The necessity for substantial operational cost reductions, including potential headcount reductions and restructuring, introduces execution risks which could affect net margins and operating efficiencies.

Valuation

• The analysts have a consensus price target of €12.693 for Bank of Ireland Group 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 €14.9, and the most bearish reporting a price target of just €11.4.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.3 billion, earnings will come to €1.4 billion, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 6.8%.
• Given the current share price of €10.32, the analyst price target of €12.69 is 18.7% 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.