Digital Banking And TL Loans Will Expand Market Presence

Key Takeaways

• Increased retail deposits and strategic lending focus could lower funding costs, enhancing net interest income and earnings growth.
  
• Digital banking expansion and innovation bolster fee income, potentially driving revenue growth despite market volatility.
  
• Economic challenges such as inflation, funding costs, and currency volatility could constrain Turkiye Garanti Bankasi's margins, earnings, and financial stability.

Catalysts

Provides various banking products and services in Turkey.

• Increased customer deposit market share, particularly from retail, may lead to lower funding costs, positively impacting net interest income margins and overall earnings.
  
• Strong gains in TL loans and strategic focus on lending-driven asset composition suggest potential revenue growth, especially given expected GDP growth and potential easing of monetary policy.
  
• Expansion in digital banking and customer base strengthens fee income potential, which may drive higher revenue growth even in volatile market conditions.
  
• Continued innovation in digital platforms and robust capital strength provide a foundation for expanding market presence and enhancing revenue streams, potentially supporting higher future earnings.
  
• Strategic management of interest rate exposure and asset-liability duration may mitigate risk and enhance net interest margin resilience, contributing to improved profitability over time.

Turkiye Garanti Bankasi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Turkiye Garanti Bankasi's revenue will grow by 33.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 37.8% today to 33.8% in 3 years time.
• Analysts expect earnings to reach TRY 198.5 billion (and earnings per share of TRY 39.07) by about May 2028, up from TRY 94.0 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 7.4x on those 2028 earnings, up from 4.6x today. This future PE is greater than the current PE for the GB Banks industry at 5.6x.
• 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 29.78%, as per the Simply Wall St company report.

Turkiye Garanti Bankasi Future Earnings Per Share Growth

Risks

• The anticipated inflation rate was revised upward, creating the potential for increased costs and reduced purchasing power, which could negatively impact net margins and earnings.
  
• The current account deficit is expected to worsen due to a deterioration in the core trade deficit and increased gold imports, potentially impacting revenue and profitability.
  
• There are increased funding costs due to CBRT's tightening measures, which could affect net interest margins and delay margin recovery, potentially impacting earnings.
  
• Higher cost of risk due to increasing NPL inflows from unsecured loans could lead to increased provisioning, affecting net margins and earnings.
  
• Currency volatility and foreign currency deposits growth among corporates suggests increased dollarization, which might impact financial stability and earnings due to exchange rate fluctuations.

Valuation

• The analysts have a consensus price target of TRY159.635 for Turkiye Garanti Bankasi 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 TRY194.93, and the most bearish reporting a price target of just TRY105.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be TRY587.6 billion, earnings will come to TRY198.5 billion, and it would be trading on a PE ratio of 7.4x, assuming you use a discount rate of 29.8%.
  
• Given the current share price of TRY102.7, the analyst price target of TRY159.63 is 35.7% 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.