Ventodivino
מגן ולא יראה
Monte Paschi di Siena
Neutral
Previous: Not Rated
BMPS.MI, BMPS IM
Upside from rising rates but overhang from ECB
guidance on NPEs – moving to a Neutral rating
Price: €4.55
Price Target: €5.00
European Banks
Delphine Lee AC
(44-20) 7134-3971
[email protected]
Bloomberg JPMA DLEE <GO>
Eric Barbirato
(44-20) 7134-8049
[email protected]
Kian Abouhossein
(44-20) 7134-4575
[email protected]
J.P. Morgan Securities plc
For Specialist Sales advice, please
contact:
Gigi Sparling
(44-20) 7134-0355
[email protected]
James Goulbourne
(44-20) 7134-2524
[email protected]
Monte Paschi di Siena (BMPS.MI;BMPS IM)
FYE Dec 2016A 2017E
(Prev)
2017E
(Curr)
2018E
(Prev)
2018E
(Curr)
2019E
(Prev)
2019E
(Curr)
Adj.EPS FY (€) (112.56) 6.22 (0.78) 10.37 0.18 15.15 0.50
NAV/Sh FY (€) 207.70 275.40 9.34 284.81 8.22 299.08 8.66
ROE FY (41.2%) 2.1% (10.2%) 3.5% 2.0% 5.0% 5.7%
P/E (x) FY NM NM NM 0.5 NM 0.3 10.5
RoNAV FY (43.2%) 2.2% (10.6%) 3.7% 2.1% 5.2% 5.9%
P/NAV FY 0.0 0.0 0.5 0.0 0.6 0.0 0.5
Basel III Equity Tier 1 ratio FY 6.5% 10.2% 14.1% 10.2% 11.4% 10.9% 11.7%
Net Income Attributable to
Ordinary Shareholders FY (€ mn)
(3,240) (148) (3,557) 276 (80) 418 496
Source: Company data, Bloomberg, J.P. Morgan estimates.
Company Data
Price (€) 4.55
Date Of Price 25-Oct-17
Price Target (€) 5.00
Price Target End
Date
31-Dec-18
52-week Range (€) 72.80-14.71
Market Cap (€ bn) 5.19
Shares O/S (mn) 1,140
See page 20 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
Following a period of restriction, we are moving to a Neutral recommendation
on MPS with a SOP-based, Dec-18e PT of €5.0 from Not Rated. Post NPL
disposal and recap, we expect ROTE to improve to 5.9% in ‘19e and 7.7% in
‘20e, supported by the cost restructuring and lower provisions. CET1 is solid
at 12.8% end '20e and we expect gross NPE ratio to improve to 15% end ‘20e.
MPS shares trade at 9.1x PE, 0.5x NAV for RoNAV 5.9% in ‘19e. Higher
rates would provide further upside, but ongoing uncertainty on new ECB
guidance for NPEs could weigh on performance. On a relative basis, we
continue to prefer UCG (OW), trading at similar multiples with better asset
quality metrics and stronger capital.
High gearing to rising rates: We forecast EPS of €0.50 in ‘19e and €0.69
in ‘20e, with ROTE returning to more normal levels of ~5.9% in '19e and
7.7% in ‘20e, supported by cost reduction of -3.6% CAGR 2016-20e and
loan losses declining to 84bp in '19e and 72bp in '20e. Our estimates assume
3m Euribor rising +70bp from -33bp to +6bp end '19e and +38bp end '20e,
in line with the forward curve. MPS is, however, highly sensitive to rising
rates, with the group targeting €1.07 EPS and 11% ROTE in 2021e
including €200m impact from 3m Euribor rising ~120bp to +87bp end
2021. Note that our net profit estimates in ‘19e are ~13% below target on
lower revenues, in particular non-interest income.
CET1 solid at 12.8% end 2020e: We expect Basel 3 CET1 to decline from
14.7% end Q2 17 proforma of the recap to 14.1% end ‘17e and 11.4% end
‘18e, due to net losses of €-315m in H2 17e and €-80m in ‘18e, IFRS9 full
First Time Adoption impact of €1.2bn, as well as RWA inflation of €3.3bn
due to new regulations and model changes. Capital however improves to
11.7% end '19e and 12.8% end ‘20e on higher profits. Note that our CET1
FL estimates are lower than targets as we do not phase in IFRS9 impact.
Gross NPE ratio improving to 15% end 2020e but overhang from new
ECB guidance for NPEs: Post the €26bn NPL disposal to Atlante, MPS
gross NPE ratio stands at 19.5% with coverage of 48% end Q2. We expect
further improvement to gross NPE of 17% end ‘19e, 15% end ‘20e and 13%
end 21e, supported by better macro as well as management actions, with
NPE coverage rising to ~59% end 20e including IFRS9. New ECB guidance
on new NPEs could however result in materially higher provisions, and ECB
pressure on banks with gross NPE above 10% remains high.
Valuation: MPS shares trade at 9.1x PE, 0.5x NAV for RoNAV 5.9% in
2019e, compared to small cap Italians at 7.1x PE, 0.5x NAV for RoNAV 6.5%.
For similar multiples, we would prefer UCG at 9.1x PE, 0.7x NAV for RoNAV
7.8% with better asset quality metrics and stronger capital.
Neutral
Previous: Not Rated
BMPS.MI, BMPS IM
Upside from rising rates but overhang from ECB
guidance on NPEs – moving to a Neutral rating
Price: €4.55
Price Target: €5.00
European Banks
Delphine Lee AC
(44-20) 7134-3971
[email protected]
Bloomberg JPMA DLEE <GO>
Eric Barbirato
(44-20) 7134-8049
[email protected]
Kian Abouhossein
(44-20) 7134-4575
[email protected]
J.P. Morgan Securities plc
For Specialist Sales advice, please
contact:
Gigi Sparling
(44-20) 7134-0355
[email protected]
James Goulbourne
(44-20) 7134-2524
[email protected]
Monte Paschi di Siena (BMPS.MI;BMPS IM)
FYE Dec 2016A 2017E
(Prev)
2017E
(Curr)
2018E
(Prev)
2018E
(Curr)
2019E
(Prev)
2019E
(Curr)
Adj.EPS FY (€) (112.56) 6.22 (0.78) 10.37 0.18 15.15 0.50
NAV/Sh FY (€) 207.70 275.40 9.34 284.81 8.22 299.08 8.66
ROE FY (41.2%) 2.1% (10.2%) 3.5% 2.0% 5.0% 5.7%
P/E (x) FY NM NM NM 0.5 NM 0.3 10.5
RoNAV FY (43.2%) 2.2% (10.6%) 3.7% 2.1% 5.2% 5.9%
P/NAV FY 0.0 0.0 0.5 0.0 0.6 0.0 0.5
Basel III Equity Tier 1 ratio FY 6.5% 10.2% 14.1% 10.2% 11.4% 10.9% 11.7%
Net Income Attributable to
Ordinary Shareholders FY (€ mn)
(3,240) (148) (3,557) 276 (80) 418 496
Source: Company data, Bloomberg, J.P. Morgan estimates.
Company Data
Price (€) 4.55
Date Of Price 25-Oct-17
Price Target (€) 5.00
Price Target End
Date
31-Dec-18
52-week Range (€) 72.80-14.71
Market Cap (€ bn) 5.19
Shares O/S (mn) 1,140
See page 20 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
Following a period of restriction, we are moving to a Neutral recommendation
on MPS with a SOP-based, Dec-18e PT of €5.0 from Not Rated. Post NPL
disposal and recap, we expect ROTE to improve to 5.9% in ‘19e and 7.7% in
‘20e, supported by the cost restructuring and lower provisions. CET1 is solid
at 12.8% end '20e and we expect gross NPE ratio to improve to 15% end ‘20e.
MPS shares trade at 9.1x PE, 0.5x NAV for RoNAV 5.9% in ‘19e. Higher
rates would provide further upside, but ongoing uncertainty on new ECB
guidance for NPEs could weigh on performance. On a relative basis, we
continue to prefer UCG (OW), trading at similar multiples with better asset
quality metrics and stronger capital.
High gearing to rising rates: We forecast EPS of €0.50 in ‘19e and €0.69
in ‘20e, with ROTE returning to more normal levels of ~5.9% in '19e and
7.7% in ‘20e, supported by cost reduction of -3.6% CAGR 2016-20e and
loan losses declining to 84bp in '19e and 72bp in '20e. Our estimates assume
3m Euribor rising +70bp from -33bp to +6bp end '19e and +38bp end '20e,
in line with the forward curve. MPS is, however, highly sensitive to rising
rates, with the group targeting €1.07 EPS and 11% ROTE in 2021e
including €200m impact from 3m Euribor rising ~120bp to +87bp end
2021. Note that our net profit estimates in ‘19e are ~13% below target on
lower revenues, in particular non-interest income.
CET1 solid at 12.8% end 2020e: We expect Basel 3 CET1 to decline from
14.7% end Q2 17 proforma of the recap to 14.1% end ‘17e and 11.4% end
‘18e, due to net losses of €-315m in H2 17e and €-80m in ‘18e, IFRS9 full
First Time Adoption impact of €1.2bn, as well as RWA inflation of €3.3bn
due to new regulations and model changes. Capital however improves to
11.7% end '19e and 12.8% end ‘20e on higher profits. Note that our CET1
FL estimates are lower than targets as we do not phase in IFRS9 impact.
Gross NPE ratio improving to 15% end 2020e but overhang from new
ECB guidance for NPEs: Post the €26bn NPL disposal to Atlante, MPS
gross NPE ratio stands at 19.5% with coverage of 48% end Q2. We expect
further improvement to gross NPE of 17% end ‘19e, 15% end ‘20e and 13%
end 21e, supported by better macro as well as management actions, with
NPE coverage rising to ~59% end 20e including IFRS9. New ECB guidance
on new NPEs could however result in materially higher provisions, and ECB
pressure on banks with gross NPE above 10% remains high.
Valuation: MPS shares trade at 9.1x PE, 0.5x NAV for RoNAV 5.9% in
2019e, compared to small cap Italians at 7.1x PE, 0.5x NAV for RoNAV 6.5%.
For similar multiples, we would prefer UCG at 9.1x PE, 0.7x NAV for RoNAV
7.8% with better asset quality metrics and stronger capital.
