New higher rate targets for Greek banks – further rise to 36% coming this year

Ha Eleftherius Courtalis

The barrage of positive reports on the Greek banking sector as well as target price upgrades for systemic bank stocks continues, with NBG Securities seeing an additional 22%-36% upside this year, following its strong performance in 2023. The strong industry story continues to be in play with a return to… Dividend distribution, highly flexible profitability and execution of business plans as the big motivators.

The stock exchange therefore maintains an “outperform” recommendation for all Greek banks, while the new 12-month target price for Alpha Bank was set at €2.00 from €1.95 previously with an increase margin on the dashboard of around 28%, for Eurobank it was set at €2.10. From 1.70 euros before, with an increase margin of 22%, and for Piraeus Bank it was placed at 4.5 euros from 3.90 euros before, with an increase margin of 36%.

Greek banks started the year well, with an average return of 5.4%, outperforming European banks' 7.8%, and are well positioned to benefit from continued high interest rates, which are expected to remain unchanged through most of 2024, and a focus on expanding… Their loan portfolios. This, the brokerage firm asserts, will help Greek banks mitigate the impact of expected interest rate cuts later in the year, keeping their profitability at high levels.

The positive outlook that NBG Securities sees for the banking sector depends on the successful implementation of the banks’ business plans so far, the flexibility of expected profitability in 2024 and the possibility of distributing profits from the profits in 2023.

As NBG Sec reported, their continued efforts to reduce NPE shares have led to healthy balance sheets, while strong capital levels allow value to be returned to investors in the form of dividends from 2023 earnings.

It is estimated that this year they will distribute 10-30% of 2023 profits, while the distribution ratio will rise to 30-40% in 2025. This translates to a dividend yield of 1.9%-6.6% this year and 4.9%-7.7%. In 2025.

Finally, the prospect of further divestments of the HFSF is expected to attract further investor interest, increase trading volume and enhance the market performance of Greek banks.

The main risk the brokerage sees for 2024 is that Greek banks will not be able to grow their loan portfolios in line with targets, leaving their profitability vulnerable to any interest rate cuts.

NBG is positive on all the Greek systemic banks it covers, as it believes their banking characteristics are reflected in their relative valuations. The higher target prices it offers mainly reflect upgraded stock market estimates for its financials, given the better-than-expected performance in the first nine months of 2023. Piraeus Bank remains its top choice mainly for valuation reasons, as it is believed to still be… It is unjustifiably undervalued compared to other Greek banks, given that its metrics are rapidly converging on European levels.

They are still trading at a discount

Greek banking stocks had a strong performance in 2023, gaining 68% on average, reflecting improved profitability, strong liquidity and capital levels as well as a positive outlook. Greek banks appear to have returned to investors' radar, outperforming the European (STOXX600 Bank Index) in 2023 by 48%.

In addition, in terms of relative valuation, they continue to trade at a discount compared to European banks, which is not fully justified, according to NBG Sec, either by the risks of the Greek state, or by the risks of the banking sector itself. In particular, he points out, it trades at an average 2024 P/B ratio of 0.74x, compared to 0.91x for European banks, or at a discount of 18%.

“We believe that the relevant discount could be limited as the Greek banks' business plans are successfully implemented, improving profitability, and as dividends begin to be paid again. In addition, the divestment of the HFSF fund from Piraeus Bank and the corresponding National Bank in 2024 will be important catalysts for performance,” the brokerage concluded.