BNP Paribas Q4 Earnings: First Impression, Reiterate Buy

After our comment on the Italian major banks: UniCredit and Intesa Sanpaolo; today it is time for BNP Paribas (OTCQX:BNPQY) (OTCQX:BNPQF). It was a good call to overweight the EU banking sector, and the French bank was a clear outperformer in the period. Our investment case recap was supported by MACRO to MICRO reasons, in detail, we were forecasting 1) a higher Net Interest Margin on Mare Evidence Lab’s ECB rate hike assessment, 2) a better view of Net Interest Income compared to Wall Street equity research analysts’ consensus, and 3) a compelling valuation with the lowest outcome based on Tangible Book Value (ex-SocGen). In addition, aside from the quarterly release, we deep-dived into a comps analysis with Credit Agricole, providing top-down scrutiny on the French market coupled with our positive take on BancWest disposal.

Q4 results analysis

The leading French bank delivered a strong set of numbers. Well, we are not surprised; however, let’s investigate more.

• All in all, turnover exceed €50 billion and was up by 9.0% versus 2021 accounts. Looking at the Q4, on a negative note, top-line sales slightly decelerated with an increase of 7.8% to €12.1 billion, coming out below consensus expectations. Regarding the bank’s division, commercial banking was up by 9.3% and was driven by sharp increases in interest rates (this is very much in line with our thesis);

• Arval recorded another record result and we suggest to our readers check out our previous publication on the division deep-dive. Our internal team also has a bullish long-term thesis on ALD (from SocGen);

• On the CIB division, BNP generated 16% revenue growth in 2022 and was particularly sustained in market activities (+27%), with a sharp rise in income on equity markets as well as on fixed-income products. Despite that, as we anticipated, M&A and IPO were particularly weak given the macroeconomics uncertainties, but revenues were broadly flat on a yearly basis;

• It is important to emphasize that revenue growth was higher than operating expenses increases (9% vs 8.3%). In addition, costs were negatively impacted by the single resolution fund inquiries;

• At the group level, BNP’s cost of risk remained at a low level in 2022 and stood at 31 basis points compared to 34 basis points recorded in the previous year. At the year’s end, the bank also strengthened its solvency with an equity ratio of 12.3% vs 12.1% (at September’s end). In addition, the cost of risk was negatively impacted by an exceptional €204 million cost due to Poland’s “Act on Assistance to Borrowers”.

Conclusion and Valuation

Aside from the positive quarterly results, BNP Paribas decided to raise its cost reduction target by €300 million and now we forecasted €2.3 billion in cost-saving initiatives by 2025. By then, EPS should grow by more than 12% with a net income growth expectation of a plus 9% versus the 7% presented in the last strategic plan (Fig 1). Return on tangible equity was 10.2% and reflected the solid performance of the French leading bank. This was also supported by its integrated and diversified business model.

Fig 1

Regarding the bank valuation, in line with our previous estimate, we value BNP stock using a sustainable ROTE at 9% and a tangible book value of c0.9x. Based on the TBV, we continue to rate the company with a buy rating target, increasing our price to €80 per share. To support this valuation, the company announced exceptional share buybacks of more than €5 billion and a dividend increase to €3.90 per share compared to €3.67 paid in 2022.

Fig 2

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