Digital App Launch Will Transform Polish Banking Despite Rate Pressures

Key Takeaways

• The bank's digital banking push and new app launch aim to drive revenue growth through increased customer engagement and transactional volume.
  
• Stabilized risk costs and improved loan quality, coupled with diversifying income streams, could significantly boost net margins and profitability.
  
• High interest rates and economic risks could impact Alior Bank's revenue growth, while investments in technology and relationship banking may strain short-term finances.

Catalysts

Provides banking products and services for individuals, businesses, and enterprises in Poland.

• The bank's strategy of increasing its number of customers using the mobile app and its new app launch expected in late 2025 indicates a push towards digital banking, which can increase transactional volume and contribute positively to future revenue growth.
  
• The observed significant growth in mortgage and consumer loans despite high interest rates suggests potential continued expansion in the bank's loan portfolio, which could enhance net interest income in the coming quarters.
  
• The stabilization of the cost of risk and improvement in non-performing loan ratios can lead to higher net margins as credit quality improves and fewer provisions are required.
  
• The bank's restructuring efforts, focused on long-term customer relationships and digital integration, could boost future revenues by increasing brand loyalty and customer engagement, leading to enhanced earnings.
  
• Planned enhancements in commission-generating activities and expected increases in commission income by 2026 point toward a strategy to diversify income streams, potentially increasing net margins and overall profitability.

Alior Bank Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alior Bank's revenue will grow by 5.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 41.7% today to 31.3% in 3 years time.
• Analysts expect earnings to reach PLN 2.1 billion (and earnings per share of PLN 16.39) by about May 2028, down from PLN 2.3 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.2x on those 2028 earnings, up from 5.7x today. This future PE is greater than the current PE for the GB Banks industry at 10.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.0%, as per the Simply Wall St company report.

Alior Bank Future Earnings Per Share Growth

Risks

• High interest rates in the current environment may deter potential mortgage customers, impacting future revenue growth from mortgage products.
  
• The company's net interest income is under pressure due to changing interest rates, which could lead to reduced net margins and profitability if not offset by business volume growth.
  
• Commission income has decreased by 3%, partly due to changes in the settlement of safe credit 2% loans, which could negatively affect earnings if similar trends continue.
  
• The Polish economy faces external risks from potential American tariffs, which could affect the bank's business clients and, consequently, its revenues and loan repayment performance.
  
• Planned investments in new technologies and relationship banking could strain financial resources in the short term, potentially impacting net margins and earnings until benefits materialize in the future.

Valuation

• The analysts have a consensus price target of PLN121.886 for Alior 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 PLN145.0, and the most bearish reporting a price target of just PLN96.7.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be PLN6.6 billion, earnings will come to PLN2.1 billion, and it would be trading on a PE ratio of 10.2x, assuming you use a discount rate of 10.0%.
• Given the current share price of PLN102.1, the analyst price target of PLN121.89 is 16.2% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.