EUR 300.00 For Business Accounts Only

Alpha Bank | The day after Tomorrow

Tomorrow strategic plan – Alpha Bank’s new business plan envisages a ~10% RoTE in 2024 to be driven primarily by NPE reduction (4pps), which will substantially reduce the CoR, and strong loan growth of ca € 10bn in 2021-24 (3pps). Other actions that will contribute 1pp each include: i) Cost cutting by 15%, with mgt targeting a 45% C/I ratio, ii) F&C to grow by a 9% CAGR up to 2024 and iii) growth in international operations which should be reflected in an estimated 11% RoTBV in Romania by 2024.

NPE reduction to accelerate, CET 1 to remain quite comfortable – Management aims at a 7% NPE ratio by the end of 2022 and a 2% ratio by 2024, by upsizing the planned transactions to € 8.1bn from € 3.3bn previously, with an estimated cost of ca € 1.6bn (out of which €0.6bn already recorded). The group’s CET 1 ratio is expected to bottom out at ca 14% (FL CET at ca 12%) at the end of 2021 and to shape at ca 15.6% at the end of 2024, well above regulatory requirements, after taking into account all capital enhancing initiatives, including the recent € 0.8bn capital increase.

Capital increase completed, other initiatives to follow – The € 0.8bn equity raising was successfully completed in late June through a private placement to international investors and a public offering for domestic investors. The allocation of new shares shaped at 81% and 19% respectively, with strong demand from long-only funds as per management remarks. On top of this, several initiatives were announced such as asset sales, a JV of its real estate assets, and a synthetic securitization, which are expected to enhance regulatory capital by ca 110bps.

Update of estimates, more conservative than AB mgt on profitability – We have lowered our PPI estimates for 2021-23 by ca 3.5% on average, mainly reflecting lower NII, while raising our net income estimates by 43% for the same period on account of lower CoR as a result of the frontloaded NPE reduction. Overall, we remain more conservative than business plan estimates, expecting RoE to top 8% in 2024. We have also revised downward our estimate for NPE ratios, albeit not significantly given that we had already incorporated additional inorganic actions for 2022. Finally, we have raised our regulatory capital projections incorporating the positive impact from the capital actions.

Valuation: PT at €1.32, re-iterating Buy – After adjusting our estimates for the capital increase and the new strategic plan, we have set a new € 1.32 PT for AB, reflecting a 0.56x P/TBV on 2022 estimates. We are of the view that the acceleration of the NPE clean-up makes perfect sense and we find the plan realistic. We expect the stock to re-rate upon implementation of the clean-up initiatives, thus retaining a Buy recommendation. Our PT suggests a ca 30% upside from current levels over the next 12 months.