Qatar's LNG Expansion And Diversification Expected To Strengthen Major Bank's Prospects

Key Takeaways

• Expansion of Qatar's LNG production and diversification efforts are expected to boost QNB's revenue and enhance non-interest income.
  
• Structural reforms, strong FDI inflows, and share buybacks are likely to improve asset quality, reduce risk, and enhance shareholder returns.
  
• Economic instability in Turkey and local interest rate cuts may pressure Qatar National Bank's margins, while tax and geopolitical factors could affect liquidity and profit.

Catalysts

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

• The planned expansion of Qatar's LNG production by 85% by 2030 through the North Field expansion project, including new LNG trains and increased refining and petrochemical capacity, is expected to significantly boost QNB's revenue in the coming years as these projects drive economic growth and increase banking activity.
  
• Diversification efforts in Qatar, focusing on becoming a regional hub for business, investments, commerce, tourism, and culture, are poised to enhance QNB's non-interest income as the economy transitions towards a more knowledge-based structure, promoting higher-margin services.
  
• The anticipated improvement in net interest margins (NIMs) in Turkey due to expected rate cuts is likely to benefit QNB’s group-level margins, as the cost of funding decreases while the Turkish business potentially sees positive tailwinds.
  
• Ongoing structural reforms and robust FDI inflows into Qatar and the broader GCC region are expected to enhance QNB's asset quality and reduce risk, likely helping the bank maintain high asset quality and robust profitability, thereby potentially improving net margins.
  
• The buyback of shares announced by QNB signals a shareholder-friendly approach, likely to reduce outstanding shares and increase earnings per share (EPS) over time, which could improve valuations and investor perceptions of growth prospects.

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 13.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 48.7% today to 46.6% in 3 years time.
• Analysts expect earnings to reach QAR 21.1 billion (and earnings per share of QAR 2.03) by about December 2027, up from QAR 15.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.4x on those 2027 earnings, up from 10.6x today. This future PE is greater than the current PE for the QA Banks industry at 13.1x.
• Analysts expect the number of shares outstanding to grow by 3.99% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 19.89%, as per the Simply Wall St company report.

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

Risks

• High inflation rates and economic instability in Turkey could lead to increased costs and pressure on profit margins, impacting the overall earnings of Qatar National Bank due to its exposure there.
  
• Potential declines in net interest margins from reductions in Turkish interest rates and domestic rate cuts in Qatar could affect revenue growth negatively if not managed effectively.
  
• Asset quality deterioration, particularly in the retail sector in Turkey, could lead to higher non-performing loans, impacting Qatar National Bank's loan book and increasing provisioning costs.
  
• Implementation of a 15% corporate tax rate in Qatar may significantly reduce net profits if the bank is unable to fully offset this tax expense.
  
• Fluctuations in oil and gas prices, alongside geopolitical tensions, can impact liquidity and deposit growth, introducing variability in QNB’s ability to fund loans and sustain asset growth.

Valuation

• The analysts have a consensus price target of QAR 19.38 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 QAR 21.0, and the most bearish reporting a price target of just QAR 15.65.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be QAR 45.3 billion, earnings will come to QAR 21.1 billion, and it would be trading on a PE ratio of 16.4x, assuming you use a discount rate of 19.9%.
• Given the current share price of QAR 17.38, the analyst's price target of QAR 19.38 is 10.3% 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.