Rising Costs And Slowing Loan Activity Will Pressure Polish Bank's Profitability

Key Takeaways

• Slowing GDP growth and high operating costs could limit revenue and profitability, with regulatory costs and inflation further compressing net margins.
  
• A cautious balance sheet approach and high dividend payout may limit future growth, affecting retained earnings and ability to capitalize on interest income.
  
• ING Bank Slaski's stable market share, prudent risk management, and strong operational performance support revenue growth and financial health, with increased dividends signaling stable earnings.

Catalysts

Together with our subsidiaries, provides various banking products and services for retail clients and businesses in Poland.

• Anticipated economic developments in Poland, such as slowing GDP growth rates in 2024 and 2025, may limit the pace of revenue growth for ING Bank Slaski, even though domestic demand and public investments are expected to be driving factors.
  
• The bank's cautious approach to its balance sheet, focusing less on deposits due to high interest rates, may restrict its ability to capitalize on interest income, potentially impacting net interest margins.
  
• High operating costs and anticipated increases in regulatory costs in 2025, along with inflation adjustments, are likely to compress net margins and put pressure on profitability despite current profitability levels.
  
• The bank's future growth prospects may be dampened by a potential slowdown in loan activity driven by deleveraging trends in the economy and competition for external financing outside the banking sector, affecting interest and fee income.
  
• The bank's high payout dividend policy, with plans for a 75% payout from 2024 profits, could affect future retained earnings available for reinvestment, potentially limiting long-term earnings growth.

ING Bank Slaski Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ING Bank Slaski's revenue will grow by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 44.8% today to 32.8% in 3 years time.
• Analysts expect earnings to reach PLN 4.1 billion (and earnings per share of PLN 31.12) by about April 2028, down from PLN 4.4 billion 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 13.1x on those 2028 earnings, up from 10.1x today. This future PE is greater than the current PE for the GB Banks industry at 9.7x.
• 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 9.73%, as per the Simply Wall St company report.

ING Bank Slaski Future Earnings Per Share Growth

Risks

• ING Bank Slaski maintains stable market shares and has not seen a drop, indicating steady performance and market confidence, which could support revenue and net margins.
  
• The bank's caution in balancing deposits and loans without over-relying on debt instruments reflects prudent risk management, potentially stabilizing earnings.
  
• The optimistic outlook for economic growth in Poland in 2025, driven by domestic demand and public investment, could boost loan demand and thereby increase revenue.
  
• ING Bank Slaski plans to pay a higher-than-usual dividend due to a capital surplus, suggesting financial health and stable earnings.
  
• The bank's growth in net interest income and commission income, along with a satisfactory ROE of 20.4%, indicates strong operational performance, benefiting overall earnings.

Valuation

• The analysts have a consensus price target of PLN316.0 for ING Bank Slaski 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 PLN364.0, and the most bearish reporting a price target of just PLN256.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be PLN12.6 billion, earnings will come to PLN4.1 billion, and it would be trading on a PE ratio of 13.1x, assuming you use a discount rate of 9.7%.
• Given the current share price of PLN340.0, the analyst price target of PLN316.0 is 7.6% 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.