The Bank Will Drive Future Efficiency Through Tech Investments And Wealth Management Expansion

Key Takeaways

• Technology investments in cloud and digital banking are enhancing efficiency, reducing expenses, and improving margins.
  
• The focus on wealth management and hiring initiatives aims to boost commissions and drive revenue growth further.
  
• Potential rate reductions, deposit level shifts, and tech execution risks threaten revenue, margins, and income goals amid macroeconomic uncertainties.

Catalysts

Provides various financial products and services primarily in Italy.

• Intesa Sanpaolo’s ongoing investment in technology, including significant cloud-based transformations and digital banking expansions, is expected to drive cost efficiencies and enhance service delivery. This is likely to bolster net margins by reducing operating expenses.
  
• The bank’s focus on wealth management and protection is anticipated to significantly increase commissions and insurance income due to a structured client conversion strategy from deposits to managed assets. This is expected to drive future revenue growth.
  
• A strategic initiative to hire 800 more global advisors is targeted at further increasing the contribution from wealth management, bolstering commission income, and driving revenue growth.
  
• A strong capital position enables Intesa Sanpaolo to engage in shareholder-friendly policies, including a planned €2 billion share buyback, which can enhance earnings per share over time by reducing the share count.
  
• Stability and growth in deposits are expected to stabilize net interest income despite potential rate changes, underpinning sustained revenue and earnings growth.

Intesa Sanpaolo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Intesa Sanpaolo's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 34.2% today to 35.2% in 3 years time.
• Analysts expect earnings to reach €9.8 billion (and earnings per share of €0.59) by about April 2028, up from €8.7 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 11.3x on those 2028 earnings, up from 9.0x today. This future PE is greater than the current PE for the GB Banks industry at 8.0x.
• Analysts expect the number of shares outstanding to decline by 2.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.94%, as per the Simply Wall St company report.

Intesa Sanpaolo Future Earnings Per Share Growth

Risks

• The potential reduction in Euribor rates is a significant risk, as it could negatively impact net interest income, which is a critical component of the company's revenue and earnings projections.
  
• Although there is substantial emphasis on fee and commission income growth, any slowdown in asset under management inflows or weaker-than-expected performance in wealth management and protection could impact revenue forecasts.
  
• The reliance on maintaining deposit levels is crucial, and any shift in customer behavior leading to decreased deposits could adversely affect net interest income projections.
  
• Despite the strong tech investment and digital transformation plans, there are risks associated with execution and the ability of these investments to yield anticipated efficiency gains, potentially impacting overall operating margins.
  
• The uncertainty around macroeconomic factors and interest rate environments poses a risk to the bank's ability to achieve its ambitious net income goals, which could ultimately affect stakeholder returns and capital distribution plans.

Valuation

• The analysts have a consensus price target of €5.105 for Intesa Sanpaolo 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 €6.2, and the most bearish reporting a price target of just €3.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €27.9 billion, earnings will come to €9.8 billion, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 9.9%.
• Given the current share price of €4.4, the analyst price target of €5.1 is 13.9% 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.