Earnings are still being upgraded, but the mix is changing
- Blended forward EPS revisions of +4-5% in the last 3 months
- Fees are ticking up and NII has stabilized
- NII champions are again leading the quarter (Sabadell, AIB, BBVA) and other Spanish and Italian banks
- SHB, Lloyds, Société Générale saw some small downgrades
Despite a stock market performance of +26.48% at the end of May, multiples modestly improved
- Multiples have expanded by c. 10%-15% from 6.5x to 7.4x, driven by cheaper banks
- The discount to the broader market remains very high at 45%, vs. pre-Covid levels of 25%-30%
- Banks are still the leading sector in terms of distribution with a total cash yield of c. 10.5%
The long-term investment thesis is gaining credibility
- There is increasing recognition of the turn-around achieved by banks in terms of capital and leverage, risk management, capital discipline and transparency
- The regulatory tightening cycle is behind us
- The macro-environment has become supportive in several ways: higher longterm rate and inflation expectations support net interest margins and asset quality, while investment needs support volume growth
- M&A resumed at country level for now, but we feel there could be more to come
M&A: non-systemic banks
- Cross-border deals remain difficult
- There is further room for consolidation intra-country
- Domestic deals are likely in the shortterm despite IFRS 3 headwinds