Is There Opportunity in Banca Monte dei Paschi di Siena After Raising $18B Mediobanca Bid?

Trying to decide what to do with your Banca Monte dei Paschi di Siena shares? You are far from alone. After a rollercoaster multi-year stretch, the stock has found itself in the spotlight again, pulling in both longtime skeptics and fresh-faced optimists. Just look at this: over the past year, the stock has skyrocketed 78.4%, with an eye-popping 18.9% jump since the start of the year. But move back a little bit, and it is clear the story is more complicated. After all, it is still down 67.1% from where it was five years ago. Even in the short term, things have stayed lively, dipping 2.3% this past week and 3.9% over the last month.

The latest headline makers? News broke that the bank’s bid for rival Mediobanca might get sweeter, possibly with an $18 billion price tag and a beefed-up cash component. Not only that, but 13% of Mediobanca’s shareholders have already supported the move by tendering their shares. All these deal-making developments are causing the market to constantly rethink how risky or how rewarding Banca Monte’s future might be.

So where does that leave us on the all-important question: is the stock undervalued? Based on our six-check valuation scorecard, Banca Monte dei Paschi di Siena earns a 3, signaling it looks undervalued in half of key criteria. Next up, we will break down exactly what those valuation methods tell us about the stock and hint at an even better approach for pinpointing fair value that you will not want to miss.

Why Banca Monte dei Paschi di Siena is lagging behind its peers

Approach 1: Banca Monte dei Paschi di Siena Excess Returns Analysis

The Excess Returns model is designed to measure how much value a company creates for shareholders over and above its cost of equity. In simple terms, it weighs the profit the company generates versus the equity investors have provided, adjusted for expected growth. For Banca Monte dei Paschi di Siena, this approach centers on the company’s ability to consistently generate profits above what investors could earn elsewhere at similar risk.

Here is how the key data points stack up:

• Book Value: €9.11 per share
• Stable EPS: €1.16 per share
  (Source: Weighted future Return on Equity estimates from 6 analysts.)
• Cost of Equity: €1.01 per share
• Excess Return: €0.15 per share
• Average Return on Equity: 12.85%
• Stable Book Value: €9.01 per share
  (Source: Weighted future Book Value estimates from 3 analysts.)

Based on these figures, the Excess Returns model estimates that Banca Monte dei Paschi di Siena is trading at a 25.8% discount to its intrinsic value. This indicates that the current share price underestimates the company’s true earning power and stability. This suggests a meaningful margin of safety for investors willing to look beyond the company’s past struggles and focus on its improved returns on equity and capital.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Banca Monte dei Paschi di Siena.

Our Excess Returns analysis suggests Banca Monte dei Paschi di Siena is undervalued by 25.8%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Banca Monte dei Paschi di Siena Price vs Earnings

For established, profitable banks like Banca Monte dei Paschi di Siena, the Price-to-Earnings (PE) ratio is often the go-to valuation metric. This is because the PE ratio lets investors quickly assess how much they are paying for each euro of a company’s profits, making it especially relevant when a company is steadily generating positive earnings.

What counts as a “fair” PE ratio is shaped by several factors, including how quickly a company is growing its earnings and the risks it faces. High growth prospects often justify a higher PE, while greater risks can drag that number down. Comparing Banca Monte dei Paschi di Siena's current PE of 12.04x, it is almost right in line with the peer average of 12.27x but above the broader banking industry average of 10.41x. This suggests investors are factoring in higher expectations or a stronger performance relative to some peers.

To add more nuance, Simply Wall St's proprietary Fair Ratio comes into play. The Fair Ratio, at 9.95x for Banca Monte dei Paschi di Siena, goes beyond a generic industry or peer comparison by taking into account the company’s specific earnings growth, risk factors, profit margin, industry type, and market capitalization. This custom approach is more insightful than just relying on averages because it is tailored to the business’s unique profile.

Comparing the PE ratio of 12.04x to the Fair Ratio of 9.95x shows that the stock is trading at a modest premium to its fair value. This suggests investors are willing to pay slightly more based on the current outlook, although the difference is not major.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Banca Monte dei Paschi di Siena Narrative

Earlier we mentioned there is an even better way to understand valuation. Let us introduce you to Narratives. Narratives are a simple but powerful investing tool that helps you go beyond the numbers by letting you capture your perspective on a company, including your own assumptions for future revenue growth, profit margins, and earnings, and connecting these to a fair value estimate.

By linking the company’s story to a financial forecast and then directly to a fair value, Narratives allow you to see how your view of the business compares to current market pricing and what might cause you to buy or sell. Available to everyone on Simply Wall St’s Community page, Narratives make it easy to build a case for your investment decisions, and they update automatically when fresh news or earnings reports come in.

For example, some investors see Banca Monte dei Paschi di Siena benefiting from improving margins and strategic mergers, setting optimistic price targets above €10, while others focus on structural industry risks and forecast lower fair values near €6.50.

Narratives put you in the driver’s seat, giving you the same dynamic, adaptive toolkit that millions of informed investors use to make smarter decisions.

Do you think there's more to the story for Banca Monte dei Paschi di Siena? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com