Digital Change And ESG Mandates Will Stifle Legacy Banking

Key Takeaways

• Digital transformation and the rise of low-cost fintechs threaten the traditional banking model, creating margin pressure and slowing both client acquisition and revenue momentum.
  
• Regulatory burdens and preference shifts toward digital, low-cost platforms undermine pricing power, raise compliance costs, and risk long-term erosion of assets and fee-based earnings.
  
• Expanding market share, operational scalability, client loyalty, and a shift to higher-margin products position the company for sustained profitability and long-term growth.

Catalysts

Provides various financial services in the Netherlands, Belgium, and internationally.

• The acceleration of digital transformation in financial services and the proliferation of low-cost fintech platforms are likely to reduce demand for Van Lanschot Kempen's traditional high-touch banking model, resulting in sustained margin pressure and a slowdown in new client acquisition, which will negatively impact long-term revenue growth.
  
• Increasing regulatory burdens, particularly those associated with ESG investing requirements and new sustainability reporting regulations, are set to raise compliance costs significantly and constrain operational flexibility, thereby curbing future net margin expansion.
  
• The company's focus on mature Dutch and Western European private banking markets, which have limited organic growth potential, risks capping the pace of incremental assets under management and eroding top-line revenue momentum as market share gains become harder to sustain.
  
• Persistent industry-wide margin compression driven by the shift toward passive investment solutions and fee-based models is expected to undermine Van Lanschot Kempen's pricing power, putting recurring commission income and earnings under ongoing structural threat.
  
• The next generational transfer of wealth to younger clients, who increasingly favor digital-first, low-cost platforms over traditional wealth management, threatens to disrupt Van Lanschot Kempen's client base and diminish client stickiness, raising risks of declining long-term AuM and fee-based earnings.

Van Lanschot Kempen Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Van Lanschot Kempen compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Van Lanschot Kempen's revenue will grow by 4.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 18.2% today to 19.6% in 3 years time.
• The bearish analysts expect earnings to reach €161.0 million (and earnings per share of €3.79) by about August 2028, up from €131.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 14.8x on those 2028 earnings, down from 18.8x today. This future PE is greater than the current PE for the NL Capital Markets industry at 13.5x.
• Analysts expect the number of shares outstanding to decline by 0.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.39%, as per the Simply Wall St company report.

Van Lanschot Kempen Future Earnings Per Share Growth

Risks

• Strong organic and inorganic growth in assets under management, as evidenced by 17% annual growth and successful acquisitions like Accuro and Robeco's online investment platform, indicates Van Lanschot Kempen is expanding market share and establishing a broader recurring fee base, which can drive higher long-term revenues.
  
• The company's deliberate focus on cost control and scalability, with income currently outpacing cost growth and ongoing digital and AI investments to automate operations, supports improving operating leverage and helps net margins expand over the long term.
  
• High and stable client satisfaction, along with evidence of deepening share of wallet among existing clients-especially in Belgium where half of inflows are from existing relationships-demonstrates durable client relationships that underpin earnings stability and organic revenue growth.
  
• The bank's successful track record in launching new private market funds and expanding into higher-margin discretionary services, particularly in Belgium and Switzerland, suggests a continued shift toward more profitable products, likely boosting net profit margins over time.
  
• Van Lanschot Kempen's robust capital position, with a CET1 ratio above targets and substantial distributions to shareholders, together with stable/diversifying earnings across all business segments, positions the company to benefit from long-term secular trends such as wealth transfer, supporting potential long-term increases in both revenue and earnings.

Valuation

• The assumed bearish price target for Van Lanschot Kempen is €44.5, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Van Lanschot Kempen's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €57.0, and the most bearish reporting a price target of just €44.5.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €822.8 million, earnings will come to €161.0 million, and it would be trading on a PE ratio of 14.8x, assuming you use a discount rate of 8.4%.
• Given the current share price of €58.5, the bearish analyst price target of €44.5 is 31.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.