Greek Bank Stocks: “They Run. They Run. Do They Run?”

By Demosthenes Triga

The majority of European and US banks have a potential recession hanging over them, which means higher risks and an uncertain economic environment that leads to higher provisions. Adding to the unknowns from the recession, bank stocks are facing concerns about competition for customer deposits, rising costs and a weaker outlook for supplies. Why can Greek banks make a positive difference in 2023?

On February 2, the European Central Bank raised interest rates (for the fifth consecutive time since July 2022) by 50 basis points. to 3% while also announcing its intention to increase interest rates by 50 basis points. At the meeting held on March 16, 2023. The rise in interest rates boosted the profitability of banks, especially those that have a larger volume in terms of floating interest rates. In Italy, where banks reported Q4 2022 results, net interest income increased significantly (+57%) such as Intesa Sanpaolo and UniCredit +43%. Net interest income, which will be announced according to the economic calendar, is expected to show an impressive rise for Greek banks, much higher than market estimates, which the market has “rushed” to discount.

However, what worries investors most is not yesterday but today and especially the “unknown” tomorrow. Estimates for the Eurozone put GDP growth around +0.3% for 2023, while a recent analysis by KEPE suggested that Greece could be closer to +2.2%. If the country’s development estimates are checked, Greek banks will be able to outperform the competition.

Characteristic of the prevailing climate for Greek banks is the assumptions of the European Banking Authority about stress tests to be announced in July 2023. The base scenario for the Greek economy predicts growth of 1.5% this year, 3% in 2024 and 2.8% in 2025. It is expected Greek unemployment will decrease from 11.5% in 2023 to 10.4% in 2024 and 9.4% in 2025. Real estate prices are expected to increase by 4.7% in 2023, 3.4% in 2024 and 3% in 2025, while inflation Estimates are 5.8% in 2023, 3.6% in 2024, and 2.5% in 2025. Based on the unfavorable scenario, the Greek economy is expected to contract by 1.9% this year and by 4.5% in 2024, to recover to 0.9%. % in 2025.

We must not forget that investors can now invest in any regulated stock market in the world at the click of a button. So it is not enough that Greek banks have good profitability and good dividend yield, but the valuation is more attractive than the corresponding European banks! So the advantage for Greek banks will come from increased loans as the economy will run at a higher rate than the European average, since at present they are always relatively low leveraged compared to the corresponding European average.

On the other hand, monetary tightening by the European Central Bank as it aims to reduce inflation will lead to lower demand for loans. At the same time, banks will receive higher provisions because continued interest rate increases in a high inflation environment will eventually cause some borrowers to default or have difficulty paying. All this constitutes a process that Greek banks have gone through to the worst degree, while the low loan-to-deposit ratio is their main defense.

In conclusion, in terms of valuation, Greek banks according to how well they clear their balance sheet of non-performing loans, what is the return on equity, what is the loan coverage ratio they have, and is the market rated. Accordingly. Looking at the 2023 returns, we see Piraeus Bank topping the list as it has the lowest valuation and management has stated that it has no intention of doing an IPO while until recently it had the highest percentage of NPEs. Investors quickly narrowed the gap regarding the next alpha bank. The National Bank and Eurobank are one step ahead in their market rankings, respectively. The European average based on the P/B ratio is around 0.80. Finally, we must never forget that return is closely related to risk!

Jumbo: Dividend Yield Exceeding 6%!

Jumbo’s January performance was impressive with group sales growing +45%. We obviously don’t expect sales to continue at that rate and for the rest of 2023, but it’s a great start in 1/12 of this year.

Bulgaria and Greece were the spearheads of the group with +53% and +48% compared to January 2022. Let us recall that in January 2022 there were restrictions due to COVID-19 in different regions with the comparison highlighting the largest increase in sales for the month of January. It is clear that product mix helped increase sales as the consumer became more price sensitive due to shrinking disposable income after the rise in inflation.

In this context, the management of Jumbo will propose to GS (March 8, 2023) a cash dividend of € 1.155 per share with a dividend yield exceeding 6%, an amount that is part of the extraordinary reserves of taxable and undistributed profits of previous years. It should be noted that the amount in question is equal to the total amount distributed during 2022. It is worth noting that, based on estimates, the company’s net borrowing exceeded 500 million euros in cash at the end of 2022.

In terms of valuation, the Jumbo Group trades at 5.7 times (EV / EBITDA) operating earnings (EBITDA) for 2023. At the same time, based on estimated net earnings for 2023, the Group is only 10.5 times (P / e)!

The first signs of “exhaustion” in the returns of US banks

The surprises were negative earnings per share from Goldman Sachs ($3.32 vs. $5.56) and U.S. Bancorp ($0.57 vs. $1.12) and downward revisions to EPS estimates for Wells Fargo (up $0.59 from $1.26) and Allstate (down – $1.36 from 1.94). dollars) were the main contributors to the S&P 500’s earnings decline since December 31, 2022. As a result, the financial sector’s earnings decline rose to -13.9% from -7.5% during the period.

As can be seen from the table, the ratings of the main financial groups show significant differences, especially those of Goldman Sachs, where its opening up to consumer credit in cooperation with Apple seems more difficult than the company had planned. The market is discounting earnings estimates to shrink in the coming quarters resulting in earnings multiples of 4 x 2023 and 2024 only!

On the other side of the Atlantic, where rate hikes have been more aggressive than the Fed, we saw the first signs of increased expectations due to a possible recession while JP Morgan was a financial group that showed a decline in interest income due to the interest rate. walking long distances. At the same time, Wells Fargo and Bank of America gave estimates of low interest income for the first quarter of 2023. It is a fact that if we assume that the American is a little ahead of the economic cycle, then the writing samples of banks begin to show “the first signs of fatigue”!

Agenda (21/02/23 – 26/02/23)

The financial results of OTE, ELPE and Piraeus Bank dominate

Domestically, the Bank of Greece announces today, Tuesday, developments in the travel balance of payments for December 2022, while Entersoft publishes financial results for 12 months 2022. On Wednesday, Ideal is expected to announce financial results for the fourth quarter of 2023 (flash note). On Thursday, OTE is expected to announce financial results for the fourth quarter of 2023. On Friday, Hellenic Petroleum and Piraeus Bank are expected to announce financial results for the fourth quarter of 2023. On the same day, Unibios held an extraordinary general meeting. The main topic is the election of a new board of directors, while ELSTAT is expected to announce the Building Materials Price Index for New Residential Buildings for January.

Focus on revised US and German GDP figures and US personal consumption.

Overseas, Germany’s February Manufacturing PMI, February survey-based Economic Sentiment and January Existing Home Sales in the US will be released in the afternoon. On the same day, the financial results are announced by Home Depot (Dow Jones) and Walmart (Dow Jones). Inflation for January in Germany was released on Wednesday, as well as an index of business confidence based on a February survey. On Mondays, Tuesdays and Wednesdays the Brazilian Market will remain closed due to Carnival. In terms of financial results for the fourth quarter, Deutsche Telekom announced ……. On Thursday, eurozone inflation for January will be released, while in the afternoon the revised figures for the change in GDP in the fourth quarter of 2022 in the US will be released, with estimates speaking at +2.7% versus +2, 9% in the first estimate. The Japanese market will remain closed on Thursday due to a public holiday. On Friday, it is Germany’s turn to release revised GDP growth figures for the fourth quarter of 2022 with market estimates calling for +1.1% versus +0.5% from the preliminary estimate. However, in the early afternoon of the same day, the Personal Consumption Expenditure Index (the change in prices of personal consumption items) was released, with the market estimate of +4.4% compared to the previous reading of 4.4%, unchanged. Finally, the week concludes with the University of Michigan’s release of short- and long-term consumption and inflation forecasts as well as new home sales for the month of January in the US.

* Demosthenes Tryngas is a BETA Stock Exchange Certified Stock & Market Analyst – [email protected]

** Republished from Kefalio Newspaper