Wealth Management Focus Will Continue To Attract Net New Money

Key Takeaways

• Strategic focus on wealth management and CIB growth suggests increased revenue and sustainable fee income, bolstering overall financial performance.
  
• Expansion in Consumer Finance and capital-light operations improve net margins and profitability, enabling strong capital distribution and EPS growth.
  
• High execution risk in merger plans and market challenges could hinder Mediobanca's revenue and earnings growth, with concerns over dis-synergies and capital strategy.

Catalysts

Provides various banking products and services in Italy and internationally.

• The strategic focus on wealth management has led to a substantial increase in net new money, with significant growth in managed assets, indicating potential for higher management fees and resulting revenue growth.
  
• The increase in fee-generating business activities in CIB, notably driven by Arma Partners, suggests a potential for sustainable fee income growth, positively impacting revenue.
  
• Expansion in the Consumer Finance sector, with growth in new loans exceeding sector averages, is expected to support net interest income (NII) and overall profitability.
  
• The company’s strategic shift toward capital-light operations, focusing on generating fees without significant balance sheet usage, suggests improved net margins and stronger capital distribution capacity.
  
• Planned capital distributions, including dividends and buybacks, highlight a projected increase in earnings per share (EPS), supported by strong capital generation and improved operating performance.

Mediobanca Banca di Credito Finanziario Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mediobanca Banca di Credito Finanziario's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 39.0% today to 35.4% in 3 years time.
• Analysts expect earnings to reach €1.4 billion (and earnings per share of €1.85) by about March 2028, up from €1.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €1.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.1x on those 2028 earnings, up from 10.4x today. This future PE is greater than the current PE for the GB Banks industry at 7.7x.
• Analysts expect the number of shares outstanding to decline by 2.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.59%, as per the Simply Wall St company report.

Mediobanca Banca di Credito Finanziario Future Earnings Per Share Growth

Risks

• The proposed merger with another bank presents high execution risk due to the lack of an agreed deal and Mediobanca's inability to conduct due diligence, which could impact revenue and earnings growth negatively.
  
• The management expressed concerns about dis-synergies from a potential merger, suggesting it might negatively affect revenue due to potential loss of clients and professionals.
  
• The financial market landscape poses challenges, as Mediobanca predicts a flattish NII this year and only a slight increase next year, which could put pressure on revenue growth.
  
• Competitive dynamics and macroeconomic conditions may impact Mediobanca's ability to maintain the current growth rates in high-performing sectors like Wealth Management and Consumer Finance, potentially affecting overall revenue and earnings.
  
• The continued focus on capital-light business models might limit aggressive growth opportunities, which could affect profitability growth if the market conditions demand more capital-intensive strategies.

Valuation

• The analysts have a consensus price target of €17.186 for Mediobanca Banca di Credito Finanziario 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 €21.0, and the most bearish reporting a price target of just €15.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.1 billion, earnings will come to €1.4 billion, and it would be trading on a PE ratio of 13.1x, assuming you use a discount rate of 12.6%.
  
• Given the current share price of €16.68, the analyst price target of €17.19 is 3.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.