Future PE Ratio Will Exceed GB Capital Markets Average, Suggesting Overvaluation

Key Takeaways

• Strong client deposit growth and strategic asset management signal confidence in sustained revenue expansion and stable margins.
  
• Targeted recruitment and innovative products aim to boost profits by enhancing wealth management and capturing new revenue streams.
  
• Banca Generali's strong financial health, strategic expansion, and substantial dividend policy underscore robust growth potential and confidence in sustained profitability and revenue generation.

Catalysts

Distributes financial products and services for affluent and private customers through financial advisors primarily in Italy.

• Banca Generali is expecting significant growth in client deposits and asset management solutions, emphasizing stable margins and asset expansion, which suggests confidence in continued revenue growth.
  
• The introduction of new insurance wrapper products combined with favorable interest rate environments is expected to drive at least €1 billion of new net inflows, likely leading to increased revenues.
  
• Strategic recruitment efforts, including attracting top bankers and expanding in Switzerland via targeted recruitment, are expected to boost revenue and profit growth through enhanced operational capacity in wealth management services.
  
• The internalization of certain business processes and service offerings, like those provided by Intermonte, are seen as a game changer, potentially increasing net margins and driving earnings growth by capturing additional revenue streams.
  
• Banca Generali's focus on more profitable, flexible insurance wrapper products, and launching new products by June indicates plans to optimize revenue streams and enhance earnings through targeted product innovation.

Banca Generali Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Banca Generali's revenue will decrease by 0.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 43.9% today to 42.3% in 3 years time.
• Analysts expect earnings to reach €425.5 million (and earnings per share of €3.71) by about March 2028, down from €431.2 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 17.7x on those 2028 earnings, up from 13.8x today. This future PE is greater than the current PE for the GB Capital Markets industry at 13.5x.
• Analysts expect the number of shares outstanding to decline by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.21%, as per the Simply Wall St company report.

Banca Generali Future Earnings Per Share Growth

Risks

• Banca Generali achieved near-record high net profit and sound commercial activity, indicating strong financial health and potential for stable or increasing revenue.
  
• The bank exhibited impressive recurring net profit growth due to asset expansion and stable margins, suggesting potential for sustained earnings.
  
• The company announced a substantial dividend payout, reflecting confidence in ongoing profitability and revenue generation.
  
• Asset expansion, particularly in investment and advanced advisory services, supports revenue growth and improved net margins, driven by increased management and advisory fees.
  
• Strong recruitment activities and strategic initiatives, such as expansion into Switzerland and the integration of Intermonte, highlight potential for enhanced revenue and market presence through increased client acquisition and higher asset inflows.

Valuation

• The analysts have a consensus price target of €49.825 for Banca Generali 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 €56.0, and the most bearish reporting a price target of just €43.8.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.0 billion, earnings will come to €425.5 million, and it would be trading on a PE ratio of 17.7x, assuming you use a discount rate of 10.2%.
• Given the current share price of €52.35, the analyst price target of €49.82 is 5.1% lower. 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.