(News Bulletin 247) – The American establishment has purchased the French bank, judging that it should publish a profit better than expected in 2024 and achieve its 2025 and 2026 objectives.

Very inexpensive stocks on the stock market, French banks are seen by several analysts as promising stocks. UBS recently drew attention to their case, judging that the recovery of retail banking in France should give them the opportunity to restore their stock market image.

This Tuesday Goldman Sachs decided that the time had come to position itself on BNP Paribas. The American bank raised its purchase opinion on the rue d’Antin bank, against “neutral” previously, and increased its price target to 82.6 euros against 74.7 euros previously.

This propelled BNP Paribas shares up 2.7% around 2:50 p.m., the strongest increase in the CAC 40.

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The BFI, a major engine of growth

Goldman Sachs notes that the value has significantly underperformed its benchmark European sector index, i.e. the Euro Stoxx Banks, by more than 30% since the start of 2022 and by around 14% since the start of 2024. This underperformance is due to the fact that French banks benefit much less from rate increases than their euro zone counterparts for multiple reasons (credits mainly at fixed rates, which delays the impact of rate increases, increased costs of deposits due to the increase in regulated savings accounts). It is also explained, more recently, by poor results from BNP Paribas in the fourth quarter of 2023.

However, Goldman Sachs considers that the coming years will be more promising for BNP Paribas, with an “operating environment which will improve (both in absolute terms and in relation to its competitors)” thanks to rate cuts in the European Central Bank and a gradual improvement in the performance of its corporate and investment banking division (BFI).

This division, which represents around a third of BNP Paribas’ revenues, should more particularly constitute “an important engine of growth in the short and medium term”, argues the American establishment.

Goldman Sachs believes that BNP is well positioned to benefit from a recovery in “capital markets” activities, i.e. businesses linked to equity markets (issue of shares, sales of securities, etc.), ” given its broad range of offerings, geographic diversification and proactive revenue growth strategy.”

BNP Paribas expects its CIB revenues to increase by 6% per year on average over the period 2021-2025, a forecast in line with Goldman Sachs projections but higher than the consensus.

Goldman Sachs is indeed much more optimistic than the consensus on the performance of BNP’s CIB. The establishment estimates that revenues will increase from 16.5 billion euros in 2023 to 18.7 billion euros in 2026 while its profit before tax will reach 7.6 billion euros in 2026, where the consensus is. on revenues of 18 billion euros in 2026 and pre-tax profit of 6.6 billion euros.

An attractive entry point

As a result, Goldman Sachs expects the market to revise upwards its forecasts as BNP executes its strategy.

Beyond the CIB and more broadly, the American bank estimates that BNP Paribas should achieve its objective in 2024 of a net profit higher than its distributable net profit of last year, i.e. 11.2 billion euros. The American establishment is counting on 11.3 billion euros (compared to 10.5 billion euros for the consensus), thanks to revenues increasing by 1.4 billion euros – thanks to the strength of the CIB – while costs would stabilize.

Same observation for the 2025 and 2026 profitability of tangible equity (ROTE) objectives of BNP Paribas: the market does not believe in them at the moment. The rue d’Antin bank intends to achieve a rate of between 11.5% and 12% in 2025 and around 12% in 2026, when the Visible Alpha consensus anticipates respective rates of 10.1% and 10%. .4%.

The same goes for net profit: BNP anticipates average annual growth of 8% over the period, which would bring its net profit to 12.8 billion euros in 2025, while the consensus is only at 11.6 Billions of Euro’s.

Goldman Sachs considers these targets credible. It also anticipates a net profit of 13.1 billion euros in 2025, as well as ROTE rates of 11.5% in 2025 and 11.6% 2026. But the American establishment explains that it is necessary to add approximately 0.5 percentage points to arrive at the same calculation base as BNP Paribas.

The American group estimates that BNP’s revenues will increase by 6% on average per year over the period 2023-2026, when costs should remain stable.

“As BNP shows continued progress towards achieving its profitability targets for 2024 (and beyond) we expect a ‘re-rating’ (an improvement in its stock market multiples, Editor’s note) of its stock at over the next twelve months”, writes Goldman Sachs, which thus perceives “an attractive entry point” for BNP Paribas shares.