Intesa Sanpaolo Q3 Earnings Expectations (OTCMKTS:ISNPY)

As we recently performed on UniCredit, today we are back to comment on our Intesa Sanpaolo (OTCPK:ISNPY) (“ISP”) expectation for the Q3, which the company plans to report on the 4th of November. In one of our recent publications, we provided a scenario analysis with a bottom-down approach to the Italian banking environment, highlighting Intesa Sanpaolo as our preferred company thanks to seven key takeaways (so today, no buy case recap – here is the link). During the year, we also analyzed ISP’s accounts:

1. Q1 results comment with a follow-up note on its Russian exposure. As a memo, the company recorded a write-down for a total consideration of €800 million
2. Half-year financial performance comment

Intesa Sanpaolo Earnings Preview

Here at the Lab, we are forecasting a mixed quarter. On one hand, we expect a positive evolution of the Net Interest Income that will support the company’s revenue line. On the other hand, we are estimating higher loans provision in light of a likely recession in the EU. Numbers in hand, our revenue guidance stands at €4.9 billion with an operating cost of €2.6 billion, so we derive a gross margin of €2.3 billion. As anticipated, we do not foresee deterioration in asset quality in the quarter, but loan write-downs are expected to grow by nearly 30% annually to €700 million due to the slowdown in GDP which will intensify in the coming quarters. Therefore, we derive a net profit of almost €800 million (down 40% on a quarterly basis). Looking at the details, we are lowering the asset management fee by 5% and the trading fee. Compared to last quarter, due to the complex market situation, we are forecasting a revenue line of €150 million versus the €378 million recorded last year quarter. On the positive side, as we recently anticipated, net interest income is expected to increase 7.5% annually to €2.15 billion thanks to higher loan volumes and a more favorable interest rate environment, while the profit on the insurance front is left unchanged at €380 million. On the cost side, we are confident that Intesa Sanpaolo will demonstrate good cost control, offsetting the inflationary pressure with further rationalization and keeping operating costs stable and a cost/revenue ratio up 2 percentage points year-on-year to 53.5% in the third quarter, stable annually at 50% in 9 months.

Looking at the capital strength ratio, the CET1 stood at 12.7% phased-in and 12.5% ​​fully loaded in the HY results, ISP’s capital position should remain solid. However, we should mention the BTP sensitivity – every 50 basis point increase in the spread is equal to a decrease of 10 basis points (0.10%) in CET1.

In our latest UniCredit publication, we find it crucial to mention the latest words of Steven Maijoor. There are also several representatives of the ECB and European regulators who have warned the markets in recent days that the complex geopolitical situation could lead to less rich balance sheets and therefore inviting Eurozone institutions to be more cautious.

Conclusion and Valuation

Here at the Lab, we are confident that Intesa Sanpaolo will confirm the 2022 guidance with a net profit of more than €4 billion assuming no critical changes to the supplies of raw materials/energy in the last quarter. Therefore, we confirm our buy rating with a price target of €2.4 per share.