Reinforced Sales Teams And Legal Strategies Will Improve Future Operations

Key Takeaways

• Strengthened sales leadership and enhanced legal processes are expected to boost loan growth, revenue, net margins, and reduce provisioning risks.
  
• New deposit activities in Greece and regulatory changes could optimize capital, increasing capital ratios and supporting earnings growth.
  
• Ongoing collection challenges and regulatory uncertainties could hamper BFF Bank’s earnings growth, net margins, and financial stability, while operational costs may rise.

Catalysts

Engages in non-recourse factoring and credit management activities towards public administration bodies and private hospitals in Italy, Croatia, the Czech Republic, France, Greece, Poland, Portugal, Slovakia, and Spain.

• BFF Bank has reinforced its commercial team and strengthened sales force leadership in countries with weaker performance, which is expected to support loan growth and increase revenue.
  
• The bank plans to revert to using judicial injunctions for debt collection in Italy, potentially improving the effectiveness of its collections and positively impacting net margins and earnings.
  
• Growth opportunities from new deposit gathering activities in Greece, approved by the Bank of Italy, are anticipated to enhance deposit growth and contribute to revenue increases.
  
• A reduction in the past due portfolio is expected through improved legal processes and collection strategies, which should lower provisioning risks and bolster net margins and capital positions.
  
• Anticipated regulatory changes, such as the revision of the EBA guidelines on the definition of default, could reduce risk-weighted assets and elevate capital ratios, supporting higher earnings through potential capital optimization.

BFF Bank Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BFF Bank's revenue will grow by 2.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 44.3% today to 47.8% in 3 years time.
• Analysts expect earnings to reach €249.0 million (and earnings per share of €1.32) by about March 2028, up from €215.7 million 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 11.0x on those 2028 earnings, up from 7.2x today. This future PE is greater than the current PE for the GB Diversified Financial industry at 8.4x.
• Analysts expect the number of shares outstanding to grow by 0.71% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.99%, as per the Simply Wall St company report.

BFF Bank Future Earnings Per Share Growth

Risks

• The persistent high level of past due invoices, with a total of €1.7 billion, suggests ongoing challenges in collections. This may impact future earnings as there is continued pressure on managing outstanding debts.
  
• The reclassification and focus on past due invoices resulted in a lost year of growth, requiring a revision of 2026 targets. This could result in revised expectations for net margins and earnings growth.
  
• Fluctuations in public sector payment times, especially in Italy, introduce variability and risk in cash flow timing. This could lead to potential revenue variability and impact financial stability.
  
• Regulatory uncertainties, particularly regarding Bank of Italy's restrictions on dividends and capital requirements, could impact net margins and retained earnings if regulatory conditions tighten further.
  
• A strategic shift back to using injunction processes for collections reveals past collection inefficiencies and potential prolonged timelines for cash realization. This could lead to increased operational costs, influencing net margins and overall profitability.

Valuation

• The analysts have a consensus price target of €10.475 for BFF Bank 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 €13.5, and the most bearish reporting a price target of just €8.2.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €521.0 million, earnings will come to €249.0 million, and it would be trading on a PE ratio of 11.0x, assuming you use a discount rate of 11.0%.
  
• Given the current share price of €8.23, the analyst price target of €10.48 is 21.4% 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.