Digitalization And Sustainability Empower Growth Amid Market Challenges

Key Takeaways

• ING Groep's digitalization focus boosts growth, notably in Netherlands mortgages, improving revenue through increased market share.
  
• Sustainability efforts and capital efficiency strategies enhance reputation and drive earnings, boosting fee income and shareholder value.
  
• Economic and competitive pressures could constrain ING Groep's profitability due to increased capital costs, wage inflation, and heightened credit risk.

Catalysts

Provides various banking products and services in the Netherlands, Belgium, Germany, rest of Europe, and internationally.

• ING Groep's strategic focus on digitalization is expected to drive growth, particularly in the mortgage sector within the Netherlands, where the company has significantly increased its market share by leveraging digital processes. This is likely to positively impact revenue growth.
  
• The bank's ability to attract new deposits through successful marketing campaigns, as evidenced by the €5.5 billion inflow in Belgium, could support net interest income by reducing funding costs. Strengthening their deposit base is crucial as it feeds the bank's capacity to lend and earn interest.
  
• ING's commitment to sustainability, with €85 billion in sustainable volume mobilized over nine months, is set to enhance its reputation and attract more business, positively benefiting fee income and customer growth.
  
• ING's strategic focus on capital efficiency, including potential securitization and risk transfer transactions, may reduce risk-weighted assets, thus improving return on equity and potentially leading to higher earnings.
  
• The announced €2.5 billion in share buybacks is expected to reduce the share count, thus positively affecting earnings per share (EPS) and dividend yields, providing a structural boost to shareholder value.

ING Groep Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ING Groep's revenue will grow by 11.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.2% today to 27.0% in 3 years time.
• Analysts expect earnings to reach €6.5 billion (and earnings per share of €2.47) by about November 2027, up from €3.6 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €5.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.9x on those 2027 earnings, down from 12.9x today. This future PE is lower than the current PE for the GB Banks industry at 13.0x.
• Analysts expect the number of shares outstanding to decline by 5.93% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.65%, as per the Simply Wall St company report.

ING Groep Future Earnings Per Share Growth

Risks

• Economic uncertainty and subdued growth in key markets could hinder Wholesale Banking revenue and impact lending net interest income.
  
• There is pressure on lending net interest income from declines in lending margins, particularly in Wholesale Banking, which may affect overall earnings.
  
• Potential competitive pressures and promotional campaigns raising deposit rates could lead to increased costs of capital and impact net interest margins.
  
• Increased cost pressures, especially from wage inflation, and VAT impacts could constrain net margins and overall profitability despite cost optimization efforts.
  
• Macroeconomic factors, such as risks in the automotive and commercial real estate sectors, could increase credit risk costs, affecting net earnings.

Valuation

• The analysts have a consensus price target of €18.58 for ING Groep 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 €22.5, and the most bearish reporting a price target of just €16.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €24.0 billion, earnings will come to €6.5 billion, and it would be trading on a PE ratio of 8.9x, assuming you use a discount rate of 5.7%.
  
• Given the current share price of €14.98, the analyst's price target of €18.58 is 19.3% 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.