Expected CBRT Rate Cuts And Lira Strategy Set To Propel Profitability And Earnings Growth

Key Takeaways

• Central Bank rate cuts and CPI-linked securities income are expected to boost Halkbank's profitability and net interest margins.
  
• Focus on Turkish lira assets and expected dedollarization trends could enhance revenue growth and reduce funding volatility.
  
• Geopolitical tensions and economic instability could adversely impact Türkiye Halk Bankasi's revenue, earnings, and financial stability amidst regulatory and market challenges.

Catalysts

Offers various banking products and services.

• The anticipated rate cuts by the Central Bank of the Republic of Türkiye (CBRT) are expected to reduce funding costs for Halkbank, thereby boosting net interest margins and profitability. This could positively impact earnings growth in future quarters.
  
• The bank's strategy to increase Turkish lira-dominated assets and extend fixed-rate loans is projected to generate higher yields, particularly if inflation stabilizes and rate cuts materialize as expected, supporting revenue growth.
  
• The potential for improved credit ratings for Türkiye, due to an enhanced reserve position and improved current account balance, could attract portfolio inflows and lower Halkbank’s risk premium, strengthening its balance sheet and profitability.
  
• Halkbank’s significant growth in CPI-linked securities income, combined with opportunities to reprice cooperative loans, should provide a strong tailwind for net revenues in upcoming quarters, as repricing efforts are expected to continue yielding higher returns.
  
• Expected dedollarization trends and focus on growing the share of demand deposits could reduce funding volatility and yield spreads between loan and deposit rates, potentially enhancing earnings through improved deposit mix and growth in fee income.

Türkiye Halk Bankasi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Türkiye Halk Bankasi's revenue will grow by 46.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 29.9% today to 19.0% in 3 years time.
• Analysts expect earnings to reach TRY 42.6 billion (and earnings per share of TRY 4.36) by about January 2028, up from TRY 21.5 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 9.7x on those 2028 earnings, up from 5.4x today. This future PE is lower than the current PE for the TR Banks industry at 12.4x.
• Analysts expect the number of shares outstanding to grow by 10.83% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 35.3%, as per the Simply Wall St company report.

Türkiye Halk Bankasi Future Earnings Per Share Growth

Risks

• Geopolitical tensions and uncertainties regarding growth and inflation outlook pose risks, which could impact Türkiye Halk Bankasi's revenue and earnings through potential volatility in the financial markets and economic instability.
  
• Weaker household and external demand alongside tight monetary policy suggest limited growth potential, negatively affecting revenue growth and net margins.
  
• The deterioration in asset quality, as evidenced by increased NPL ratio and Stage 2 loans, poses a risk to net margins and could lead to higher provisioning expenses, negatively affecting profitability.
  
• The current reduction in loan share as a percentage of total assets, due to weaker TL loan demand and high rates, might limit lending revenue growth potential, impacting overall earnings.
  
• Regulatory changes impacting capital adequacy ratios, particularly if capital buffers are lower than reported once forbearance is excluded, could strain financial stability, affecting both risk management and future earnings capacity.

Valuation

• The analysts have a consensus price target of TRY 16.99 for Türkiye Halk 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 TRY 22.59, and the most bearish reporting a price target of just TRY 5.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be TRY 224.7 billion, earnings will come to TRY 42.6 billion, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 35.3%.
• Given the current share price of TRY 16.2, the analyst's price target of TRY 16.99 is 4.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.