LNG Investments To Drive Future Lending Opportunities

Key Takeaways

• Strategic investments in LNG and diversification can drive QNB's future revenue growth through increased economic activity and credit demand.
  
• Share buyback initiatives may enhance earnings per share, supporting long-term shareholder value.
  
• QNB faces potential risks to future profitability due to credit quality issues, high tax burden, economic exposure in Turkey, and strategic market volatility.

Catalysts

Provides conventional and Islamic banking products and services to individuals and corporates.

• Investments in the North Field expansion and other hydrocarbon projects are expected to significantly increase Qatar's LNG production and boost related sectors, resulting in future revenue growth for QNB as it capitalizes on these economic activities.
  
• Qatar's diversification efforts and structural reforms aim to drive economic expansion, which will present opportunities for QNB to expand its lending and services range, potentially improving both revenue and net margins.
  
• Projections of accelerating GDP growth over the next few years suggest robust economic conditions in Qatar, which can lead to increased credit demand and revenue growth for QNB.
  
• Expected improvement in net interest income in Turkey due to management strategies and economic conditions could enhance QNB’s total earnings.
  
• Ongoing share buyback and potential for future buybacks could support EPS growth by reducing the number of outstanding shares, enhancing shareholder value.

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 13.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 48.2% today to 46.5% in 3 years time.
• Analysts expect earnings to reach QAR 21.8 billion (and earnings per share of QAR 2.09) by about January 2028, up from QAR 15.6 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 16.2x on those 2028 earnings, up from 9.8x today. This future PE is greater than the current PE for the QA Banks industry at 10.9x.
• Analysts expect the number of shares outstanding to grow by 4.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 19.94%, as per the Simply Wall St company report.

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

Risks

• The significant large write-offs of Stage 3 loans in Q4 2024, compared to Q4 2023, indicate potential underlying credit quality issues which, if persistent, could adversely affect QNB's future loan portfolio quality and net margins.
  
• Although the bank maintained high profitability in 2024, the effective tax rate is expected to rise from 44% in 2023 to as high as 49% in 2024, largely due to hyperinflation accounting in Turkey. This increased tax burden could reduce net earnings growth.
  
• The substantial exposure to Turkey's economic environment, where profitability was notably lower than peers in 2024 due to hyperinflation and other factors, poses risks to QNB's net interest income and overall earnings if adverse economic conditions persist.
  
• The Central Bank's strict guidelines on write-offs and provisioning, which delay potential recoveries, may hinder QNB's ability to improve asset quality quickly, potentially impacting future profitability and balance sheet growth.
  
• QNB's aggressive strategic focus on the Turkish and Egyptian markets for 2025 faces potential volatility from currency fluctuations and economic uncertainty, which could lead to unanticipated impacts on net interest margins and earnings stability.

Valuation

• The analysts have a consensus price target of QAR19.64 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 QAR15.65.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be QAR46.9 billion, earnings will come to QAR21.8 billion, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 19.9%.
  
• Given the current share price of QAR16.5, the analyst's price target of QAR19.64 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.