(News Bulletin 247) – The Swiss establishment went from buying to “neutral” on the value this Friday. It turns out to be more cautious than the French group about its prospects.

The results season has ended for French banks and, despite record annual profits for Crédit Agricole SA and BNP Paribas, it has not been good, far from it.

Crédit Agricole SA had the bitter experience of this on Thursday, losing 5.2%, undermined by fourth quarter accounts with lower than expected revenues coupled with higher costs. Societe Generale floated a little, but its action still fell by 1% on Thursday, when its results were published, and it also lost another 1.3% this Friday at the start of the afternoon.

But the major underperformance remains to be blamed on BNP Paribas. The rue d’Antin bank fell by more than 9% on February 1, penalized by results below expectations as well as by the lowering of some of its objectives for 2025.

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Ambitious goals

This Friday, the BNP Paribas share lost another 1.7% at the start of the afternoon, weighed down by a downgrade of UBS which went from “buy” to “neutral” on the action, reducing at the same time opportunity, its price target at 57.70 euros against 69.20 euros. The Swiss establishment judges that its new target does not provide significant enough potential (around 5% compared to Thursday’s close) to maintain a positive opinion.

On paper, UBS judges that BNP Paribas does not lack a certain appeal, provided that it achieves its new objectives for 2025. BNP Paribas intends to increase its net profit by 8% per year on average over the period 2022- 2025 and targets an average increase of 12% for earnings per share. The “ROTE”, i.e. return on tangible equity, is expected between 11.5% and 12% in 2025, and around 12% in 2026.

The Swiss bank calculates that these objectives imply earnings per share of 11 euros in 2025. On this basis, BNP Paribas shares would trade around 5 times expected earnings, which would reflect a significant discount of 24% compared to its sector.

“With revenues more defensive than average in the face of rate cuts, a large diversified bank trading at this multiple would be attractive (…),” recognizes UBS.

Other options

However, the Swiss bank is being cautious. “We do not see how the bank can generate the revenue growth necessary to achieve this objective,” explains the establishment.

To achieve its targets by 2025, BNP Paribas anticipates revenue growth of 6% over the period 2021-2025 in corporate and investment banking (BFI), and of 4.5% per year in the division. CPBS (which brings together retail banking and private banking) and 6.5% in the “investment & protection services” division (insurance, real estate services).

However, UBS, in its calculations, arrives at a fairly clear difference with the group’s forecasts in retail banking as well as (and especially) in the BFI division. BNP Paribas’ targets suggest revenues of 17.9 billion euros in this division when UBS arrives at 16.64 billion euros, the Swiss establishment being cautious on the dynamism of the equity businesses as well as for products with fixed income (bonds, currencies, commodities).

As a result, the Swiss bank is retaining a ROTE of 9.8% for 2025, compared to 11.5% to 12% targeted by the French company. It also anticipates earnings per share approximately 20% lower than the 11 euros implied by BNP Paribas’ objectives.

Furthermore, the Swiss establishment explains that there are better options for investors wishing to bet on a bank which must exceed expectations in its CIB. He cites Barclays, Deutsche Bank and Société Générale, which, according to him, are less expensive on the stock market and more focused on this theme. “And if they want to play the potential increase in net interest income in retail banking in France, SocGen is also much more exposed to it,” adds UBS.