(News Bulletin 247) – The Swiss bank has raised its buy rating on the listed structure of the mutual bank. For the establishment, too many fears are integrated into the share price.

Banks have been among the stocks most affected by political uncertainty in France, particularly due to their cyclical nature, i.e. their exposure to the economic situation.

However, several financial intermediaries, such as Jefferies, have judged that the market has been too severe on French banks, which has sometimes led them to raise their recommendations.

This is the case this Thursday of UBS which went from “neutral” to “buy” on Crédit Agricole SA, listed structure of the Crédit Agricole group, while maintaining its price target at 15.60 euros. This supports the action a little, which progresses by 1.4% around 4:20 p.m.

“There are too many fears built into the price,” UBS sums up. The Swiss bank points out that since the dissolution of the National Assembly and the calling of early legislative elections in France, Crédit Agricole SA shares have underperformed the European sector index Euro Stoxx Banks by around 5%.

This is despite “minimal” exposure to French sovereign bonds and given that, according to its discussions with investors, the outcome of the vote, i.e. a National Assembly without a clear majority, was the reference scenario and that few major political changes are to be expected.

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Towards a rebound in retail banking in France?

UBS also considers Crédit Agricole SA’s valuation to be attractive in the context of interest rate cuts by the European Central Bank (ECB). The stock is trading at 7 times expected earnings in 2025, which represents a 10% discount to its five-year average, despite “stable results, a capital surplus that is being built, and an earnings mix that would be positively influenced by interest rate cuts”.

In detail, UBS recalls that Crédit Agricole SA derives 40% of its pre-tax profit from asset management and 32% from capital markets and “asset servicing”, i.e. market services such as securities custody or collateral management.

Retail banking activity in France, via LCL (a subsidiary of Crédit Agricole SA), should improve as key rates fall, with more loan volumes, UBS anticipates.

The Swiss bank also highlights Crédit Agricole SA’s proven ability to create value through tactical acquisitions, as the company is currently integrating the acquisition of Belgian private bank Degroof Petercam and that of certain European activities of Royal Bank of Canada. The French group is also in discussions with Société Générale to buy its German subsidiary Hanseatic Bank, according to several media outlets.

The last point raised by UBS: a potential medium-term improvement in the dividend distribution rate. This rate represented 54% of distributable income in 2023 and Crédit Agricole SA in its strategic plan for 2025, targets a rate of 50%. But UBS estimates that even by increasing to 60% or even 70% by 2026 or 2027, Crédit Agricole SA would still have 4 billion euros of excess capital.

Crédit Agricole SA will publish its second-quarter results on August 1. UBS expects pre-tax profit of EUR 2.46 billion and a CET 1 capital adequacy ratio of 11.9%.