AI-Powered Lending And Digital Channels Will Strengthen Customer Relationships

Key Takeaways

• Strategic positioning in rate cycles and focus on long-term loans support margin evolution and future earnings positively.
  
• AI-driven risk management and digital innovation improve asset quality and stabilize or increase net margins through reduced credit losses.
  
• Elevated funding costs and inflation pressures erode profitability, with asset quality deterioration and regulatory challenges further constraining earnings and revenue growth.

Catalysts

Provides various banking products and services in Turkey and internationally.

• Akbank’s strategic positioning in the rate cut cycle, with a focus on high-yielding longer maturity consumer loans, mortgages, and business installment loans, is expected to support margin evolution, impacting net interest margins and future earnings positively.
  
• The prudent risk management approach using AI-based loan decision processes and automated digital channels enhances risk assessment, potentially improving asset quality and thereby stabilizing or increasing net margins through reduced credit losses.
  
• Significant gains in retail and micro segment market share due to digital innovation are projected to bolster recurring revenue streams, impacting future revenue growth positively.
  
• Strategic restructuring of the balance sheet and securities portfolio to capitalize on decreasing interest rates are poised to optimize funding costs and enhance net interest margins over time, contributing to improved earnings.
  
• Sustainable banking initiatives focusing on refinancing and restructuring financial solutions aim to strengthen customer relationships and maintain a well-managed balance sheet, potentially improving return on equity and impacting long-term earnings and net margins favorably.

Akbank T.A.S Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Akbank T.A.S's revenue will grow by 54.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.8% today to 33.0% in 3 years time.
• Analysts expect earnings to reach TRY 166.1 billion (and earnings per share of TRY 38.49) by about March 2028, up from TRY 42.4 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 6.3x on those 2028 earnings, down from 8.8x today. This future PE is lower than the current PE for the TR Banks industry at 7.1x.
• 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 30.62%, as per the Simply Wall St company report.

Akbank T.A.S Future Earnings Per Share Growth

Risks

• The banking sector faced significant profitability challenges due to economic rebalancing and a tight monetary policy stance, which elevated funding costs last year. This resulted in margin pressure beyond expectations, impacting net interest income. [Impact on Net Margins]
  
• Regulatory pressure on net interest margin (NIM) and rising inflation-driven costs weighed on profitability, leading to a decrease in net income by 36% year-on-year. This indicates challenges in maintaining earnings growth. [Impact on Earnings]
  
• Asset quality showed signs of deterioration, with risk costs expected to increase. Although this is deemed manageable, it presents a potential risk to net margins and overall financial stability. [Impact on Net Margins]
  
• There is potential refinancing risk in mortgages despite increased exposure, which could negatively impact NIM, although it might be offset by increased fee income. [Impact on Net Margins]
  
• The existing macro prudential measures, such as high reserve requirements and tight loan growth caps, contribute to pressure on spreads and margins, which may constrain revenue growth opportunities. [Impact on Revenue]

Valuation

• The analysts have a consensus price target of TRY90.709 for Akbank T.A.S 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 TRY103.0, and the most bearish reporting a price target of just TRY72.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be TRY503.0 billion, earnings will come to TRY166.1 billion, and it would be trading on a PE ratio of 6.3x, assuming you use a discount rate of 30.6%.
  
• Given the current share price of TRY71.9, the analyst price target of TRY90.71 is 20.7% 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.