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GREEK BANKS | Banking on dividends again

ECB approval and EPS upgrades likely to catalyze a re-rating – The ECB has approved Greek banks' requests to pay the proposed dividends out of 2023 profits, signaling a return to normality after 16 years. The announced payouts correspond to shareholder remuneration of €0.063 for Piraeus (1.7% DY), €0.052 for Alpha Bank, equally split between a cash dividend of €0.026 (1.6% DY) and a buyback (3.2% total yield), €0.0933 for Eurobank (4.6% DY), and €0.36 for NBG (4.6% DY). Following a period of >15% underperformance since March vs EU periphery banks, which resulted in the widening of Greek banks’ relative 2024e P/TBV discount to over 20% due to concerns over domestic banks’ sensitivity to the rate-cutting cycle and uncertainty over the size of dividends, we believe that the SSM approval and the likely commencement of guidance upgrades, starting with Piraeus Bank, for FY’24—based on superior fee generation similar to Q1 2024, a defended cost base, and reduced cost of risk—may catalyze a relief rally. This could be especially beneficial for Piraeus Bank and Alpha Bank, which have lagged compared to NBG and Eurobank.

Piraeus Bank new guidance… – PB has kicked off Greek Banks’ guidance upgrades for FY’24, now projecting a normalized 2024 EPS of €0.85 (vs. €0.80 previously and our estimate of €0.81), implying a RoTE of 15%. This upgrade is based on a lower-than-expected deposit beta, superior fee generation similar to Q1 trends, a defended cost base, and a reduced cost of risk (0.7% on net loans vs. 0.8% previously). PB’s business plan is now based on an average 3M Euribor of 3.6% for 2024 (vs 3.8% previously), with mgt expecting NII to reach €2bn (vs €1.9bn anticipated previously), implying a NIM of 2.7%. Regarding the growth of performing loans, the bank now guides for a balance of €31.7bn (vs €31.5bn previously) for FY’24. In terms of fee generation, PB now anticipates fees over assets at 0.8% vs. 0.7% before. Regarding dividend distribution, the bank will accrue 25-30% of net profits to be paid next year, subject to regulatory approval, converging gradually to European peers.

... drives a 5% increase to our 2024-26 EPS estimates; PT lifted to €5.78 – In the light of the improved outlook, we have fine-tuned our 2024-26e for PB to factor in the new guidance and Q1’24 trends. We now expect adjusted net profits of €1.01bn in 2024e (up from €0.97bn). This upgrade is mainly due to higher NII, attributed to lower migration to term deposits (27% vs. 34% envisaged previously), offsetting hedging costs and rate cuts. We also model lower underlying CoR at 0.7% (vs. 0.8%), and higher fee generation. We end up with a c5% upgrade to our 2024-26e EPS, corresponding to adjusted RoTE of 15.0% in 2024e, normalizing to 12.5% by 2026. We thus lift our PT for Piraeus Bank to €5.78 from €5.40.

Valuation: Piraeus staying top pick – Despite broadly similar trends in term deposit migration, loan spreads, and CoR across the banks in our coverage, we are conservatively holding off on earnings upgrades for Alpha Bank and NBG at this time, despite seeing significant upside risks to their existing guidance. The three banks in our coverage are still trading at just c5x 2024e PE and 0.7x P/TBV incorporating a CoE in the mid-teens, which looks excessive given the revenue resilience, significant capital optionality, and improved asset quality. With all this in mind, we reckon that the combination of conservative estimates (2025e RoTE around 12%), attractive valuations, and upcoming catalysts (further earnings upgrades) constitute a compelling investment case. We therefore reiterate our “Buy” rating for all banks with higher PT for Piraeus Bank, reiterating Piraeus as our top pick due to its solid execution and attractive risk/return.