Digital Transformation Will Drive Future Success In Poland's Banking Sector

Key Takeaways

• Digital transformation and customer engagement are expected to drive revenue growth and enhance net margins through cost reductions and increased digital users.
  
• Growth in mortgage, SME, and corporate banking sectors signifies improved earnings stability and potential for higher margins and sustained revenue growth.
  
• Uncertain interest rates, rising operating costs, legal risks, competitive pressures, and weak mortgage sales threaten Santander Bank Polska's margins and revenue growth.

Catalysts

Provides various banking products and services for individuals, small or medium-sized enterprises, corporate clients, and public sector institutions.

• Santander Bank Polska's digital transformation, reflected in the 7% growth in digital customers and 12% growth in mobile banking customers year-on-year, is expected to drive future revenue and enhance net margins through increased customer engagement and reduced operational costs.
  
• The bank's significant growth in mortgage loans and adjustable fixed-rate loans suggests an improvement in earnings stability as these products typically carry lower risk, supporting sustained revenue growth and net interest income stability.
  
• Strong performance in the SME segment, with a notable increase in business accounts and loans, indicates the bank's strategy to capture higher-margin business banking customers, which could significantly enhance future net margins and drive revenue growth.
  
• Corporate and Business Banking's growth, especially in M&A and trade finance, coupled with improved credit and FX income, points to positive future revenue trends and earnings growth, as these segments typically offer higher fees and margins.
  
• Investments in digital solutions and customer experience are anticipated to support customer acquisition and retention, leading to sustainable growth in customer base and profitability, which should positively impact future earnings and expand net margins.

Santander Bank Polska Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Santander Bank Polska's revenue will grow by 2.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 33.7% today to 37.4% in 3 years time.
• Analysts expect earnings to reach PLN 6.3 billion (and earnings per share of PLN 61.36) by about December 2027, up from PLN 5.3 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as PLN 6.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.0x on those 2027 earnings, up from 9.1x today. This future PE is lower than the current PE for the GB Banks industry at 13.1x.
• 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 9.7%, as per the Simply Wall St company report.

Santander Bank Polska Future Earnings Per Share Growth

Risks

• There is uncertainty in the market regarding interest rate cuts, which could affect net interest margins and ultimately impact revenue and earnings.
  
• The bank is facing increased operating costs, particularly from banking guarantee fund contributions and regulatory costs, which could pressure net margins.
  
• Legal risks, particularly related to the provisions and settlements for Swiss franc loans, may impact earnings through increased provisions if legal outcomes are unfavorable.
  
• Competitive pressures from other banks like PKO BP aiming for aggressive growth could affect client retention and future revenue growth.
  
• The weak performance in mortgage sales due to uncertainty around new support programs might impact future loan revenue streams and overall profitability.

Valuation

• The analysts have a consensus price target of PLN 557.8 for Santander Bank Polska 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 PLN 639.0, and the most bearish reporting a price target of just PLN 470.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be PLN 16.8 billion, earnings will come to PLN 6.3 billion, and it would be trading on a PE ratio of 12.0x, assuming you use a discount rate of 9.7%.
• Given the current share price of PLN 468.4, the analyst's price target of PLN 557.8 is 16.0% 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.