A $500 Million Benchmark And Digital Solutions Will Secure Our Future

Key Takeaways

• Successful debt issuance and innovative digital solutions could reduce borrowing costs and drive increased customer acquisition, boosting revenue growth and net margins.
  
• Planned share buyback, low-cost liability expansion, and NPL resolution efforts indicate potential EPS enhancements and improved profitability through cost efficiencies.
  
• The bank faces credit quality concerns, elevated costs, and potentially expensive financing, restraining growth and impacting net margins.

Catalysts

Provides various banking products and services to individual and corporate clients in Qatar, India, and internationally.

• Successful issuance of a $500 million benchmark in the international debt capital markets reinforces confidence, potentially reducing future borrowing costs and positively impacting net margins.
  
• Launch of innovative digital solutions, including a top-ranked corporate mobile app and enhanced retail app features, indicates potential for increased customer acquisition and improved revenue growth.
  
• Planned share buyback suggests management's belief in the stock's undervaluation, which could enhance earnings per share (EPS) over the medium to long term.
  
• Focus on expanding low-cost liabilities and enhancing cost efficiencies is expected to improve net margins and overall profitability.
  
• Initiatives for resolving real estate exposures and reducing non-performing loans (NPLs) indicate potential reductions in provision expenses, positively impacting future earnings.

Doha Bank Q.P.S.C Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Doha Bank Q.P.S.C's revenue will grow by 18.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 45.6% today to 34.8% in 3 years time.
• Analysts expect earnings to reach QAR 1.1 billion (and earnings per share of QAR 0.3) by about May 2028, up from QAR 871.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as QAR919 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.5x on those 2028 earnings, up from 8.4x today. This future PE is greater than the current PE for the QA Banks industry at 11.0x.
• 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 24.84%, as per the Simply Wall St company report.

Doha Bank Q.P.S.C Future Earnings Per Share Growth

Risks

• The increase in the non-performing loan (NPL) ratio and higher expected credit losses (ECL) for Stage 2 loans indicate ongoing credit quality concerns, potentially impacting net margins due to increased provisions.
  
• The plan to execute a share buyback, while not explicitly stated in the text, could consume cash reserves that might otherwise be used for business growth, potentially affecting long-term earnings.
  
• The transformation strategy, including digitalization and closing branches, involves significant up-front costs, as seen in the elevated cost-to-income ratio, which might reduce net margins in the short term.
  
• The reliance on interbank borrowing and high-cost additional Tier 1 capital reflects a potentially expensive financing structure, which could affect the bank's interest expenses and thus net interest margins.
  
• Continued asset quality issues, particularly in real estate exposures, and the strategic decision to maintain a conservative loan growth outlook, even amid economic growth, could restrain revenue growth.

Valuation

• The analysts have a consensus price target of QAR2.263 for Doha Bank Q.P.S.C 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 QAR2.85, and the most bearish reporting a price target of just QAR1.78.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be QAR3.1 billion, earnings will come to QAR1.1 billion, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 24.8%.
  
• Given the current share price of QAR2.36, the analyst price target of QAR2.26 is 4.2% 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.