Eurobank Holdings || BUY | Target Price EUR: 2.38 | CP: EUR 1.55 3Q23 review | Strong quarter, management upgraded 23 guidance

Optima view | Eurobank Holdings delivered a strong set of results that beat Optima estimate on higher than expected income from associates (Hellenic Bank) and lower tax rate. Hence, management upgraded 2023 guidance, as expected. The stock is trading 0.82x P/TBV23e, at 6% discount to its Southern Europe peers and 14% premium to its Greek peers, which is unjustified given its higher RoTE profile. We reiterate our Buy rating and TP of EUR 2.38/share

New guidance | Management upgraded once more reported EPS23e guidance (+7.1%) to more than EUR 0.30 (EUR >1.11bn) from EUR 0.28 (EUR 1.04bn) previously and broadly in line with our EPS23 estimate of EUR 0.33 (EUR 1.24bn). Moreover, management targets to generate a normalized RoaTBV of 17% from >15% previously. Management will provide new guidance for 2024 with FY2023 results. The NPE ratio is also expected to squeeze to 4.5% from 5.0% previously and to narrow below 4.0% due to a new securitization in 2024. 

P&L | 3Q23 reported net profit came in at EUR 296m (-34% q-o-q, +79% y-o-y), 8% above Optima estimate of EUR 274m, on higher than expected income from associates (Hellenic Bank) that reached EUR 28m in 3Q or 9.6% of reported net profit as well as on lower than expected tax rate. Adjusted net profit (excluding one-offs) came in at EUR 318m (-7% q-o-q), 9% above Optima estimate of EUR 291m and 11% above consensus estimate of EUR 286m. International operations generated an adjusted net profit of EUR 131.7m and accounted for 44% of group’s reported net profit. NII was shaped at EUR 558m (+3% q-o-q, +47% y-o-y), in line with our estimate of EUR 558m and broadly in line with consensus estimate of EUR 554m. NIM widened by 12 bps to 2.84%. Fee income came in at EUR 133m (-5% q-o-q, -4% y-o-y), broadly in line with Optima and consensus estimates of EUR 135m. Revenues landed at EUR 703m (1% q-o-q), in line with our estimate of EUR 703m and broadly in line with consensus estimate of EUR 710m.

Asset quality | Loan loss provisions reached EUR 90m (+1% q-o-q, +17% y-o-y), 4% above our estimate of EUR 87m and in line with consensus estimate of EUR 90m. and CoR stood at 89bps. Group NPEs reached EUR 2.1bn (EUR -145m q-o-q) and net NPEs EUR 500m. The NPE ratio squeezed by 30bps q-o-q to 4.9% and the NPE coverage widened to 75.0% from 73.2% in 2Q23. Organic NPE formation was slightly positive at EUR 27m from EUR 133m in 2Q23.

Capital | Tangible equity advanced by EUR 182m q-o-q to EUR 7.22bn and TBVPS increased to EUR 1.97 vs. EUR 1.90 in 2Q23. FL CET1 widened by 30bps q-o-q to 15.9%.

Pro-forma widened further to 16.4% and to 16.8%, taking into account the new synthetic securitization.

Balance sheet | Net performing loans increased by EUR 300m q-o-q, thanks to SEE. Deposits advanced by EUR 561m q-o-q to EUR 56.5bn, o/w time depos rose by EUR 1.27bn q-o-q and accounted for 33.8% of the deposit base vs. 31.9% in 2Q23. LDR improved by 5bps q-o-q to 72.0%.   

CC Highlights | Excess capital to finance loan growth, fund M&A opportunities (Hellenic Bank in Cyprus) and award shareholders (at least 25% div. payout in 2023), net credit expansion to exceed EUR 1.0bn in 2023. Eurobank expects to receive the regulatory approvals for the increase in their stake to 55% sometime in 2Q24 or early 3Q24 and afterwards they’ll launch a mandatory offer. Finally, mgt expects organic NPE formation in 4Q23 in line with 3Q23 (EUR +27m).

source: Company, Optima Research estimates, Company median estimates

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