North Field Expansion And Economic Diversification Will Unlock Future Opportunities

Key Takeaways

• Qatar's economic expansion and diversification will likely boost QNB's revenue through increased lending and financial services to new sectors.
  
• QNB's effective cost management and share buyback program indicate potential profitability improvement and enhanced shareholder value.
  
• Economic and geopolitical instabilities, compounded by new global taxes, challenge profit margins and revenue stability, potentially straining financial performance and asset quality.

Catalysts

Provides conventional and Islamic banking products and services in Qatar, Europe, North America, rest of GCC countries, and internationally.

• The North Field expansion project is expected to increase Qatar's LNG production by 85% by 2030, significantly boosting QNB's revenues through increased lending to related projects and economic activity.
  
• Qatar's efforts to diversify its economy and increase private sector engagement will likely enhance both revenue and profit margins for QNB, as it can capitalize on increased lending and financial services to emerging sectors.
  
• The robust fiscal position of Qatar, supported by strong GDP growth projections, is expected to sustain domestic economic expansion, which could elevate QNB’s earnings through higher demand for financial products and services.
  
• QNB's effective cost management, with a strong cost-to-income ratio of 22.7%, positions it to maintain higher net margins despite global tax impacts, supporting continued profitability improvement.
  
• The ongoing share buyback program suggests a strategic focus on increasing shareholder value, which could lead to an enhanced EPS, signaling potential stock undervaluation.

Qatar National Bank (Q.P.S.C.) Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Qatar National Bank (Q.P.S.C.)'s revenue will grow by 12.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 48.1% today to 47.0% in 3 years time.
• Analysts expect earnings to reach QAR 21.9 billion (and earnings per share of QAR 2.23) by about May 2028, up from QAR 15.7 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 14.0x on those 2028 earnings, up from 9.8x 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 decline by 0.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 19.87%, as per the Simply Wall St company report.

Qatar National Bank (Q.P.S.C.) Future Earnings Per Share Growth

Risks

• Increased global taxes, including the new global minimum taxes effective in 2025, have a negative impact on net profit, potentially reducing net margins if not offset by growth in other areas.
  
• Volatile macroeconomic conditions, including geopolitical challenges and policy uncertainties in advanced economies, could impact revenue stability and predictability.
  
• Potential rate cuts could adversely affect net interest margins (NIM), as QNB has some sensitivity to interest rate changes, which could result in significant declines in interest income if not managed carefully.
  
• The exposure to hyperinflationary economies, such as Turkey, could increase costs and strain financials, particularly operating expenses and net income, due to currency fluctuations and inflation impacts.
  
• Ongoing geopolitical and economic instabilities, particularly in regions like Turkey and Egypt, could affect asset quality and growth, potentially leading to increased provisions for loan losses and impacting overall profitability.

Valuation

• The analysts have a consensus price target of QAR19.745 for Qatar National 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 QAR21.3, and the most bearish reporting a price target of just QAR17.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be QAR46.7 billion, earnings will come to QAR21.9 billion, and it would be trading on a PE ratio of 14.0x, assuming you use a discount rate of 19.9%.
• Given the current share price of QAR16.7, the analyst price target of QAR19.75 is 15.4% 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.