EUR 150.00 For Business Accounts Only

Alpha Bank | Tomorrow is a new day

New strategic plan ‘Tomorrow’ – 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 – Management aims at a 7% NPE ratio by the end of 2022 (from 26% pf for Galaxy) and a 2% ratio by 2024. In order to achieve the short-term target, management decided to upsize the planned transactions to € 8.1bn from € 3.3bn previously, with an estimated cost of ca € 1.3bn (plus €0.3bn provisions recorded in Q4 2022). Out of the € 8.1bn nearly half will take place through securitisations under the Hercules APS. Moreover, an anticipated negative organic flow by € 0.3bn by the end of 2022 will bring NPEs at € 2.9bn.

CET 1 to remain well above requirements… – We have long argued that AB’s capital position is strong enough to absorb the losses associated with the clean-up. In fact, management’s projections laid out in the new business plan suggest that the CET 1 ratio would bottom out at ca 12% without the capital increase. Taking into account the capital raising, 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.

…partly due to a € 0.8bn ‘growth’ capital increase – As part of the new strategic plan AB management decided to implement a € 0.8bn capital increase in order to support future lending growth. According to management estimates, the capital increase is expected to take place in late June/early July, with existing shareholders entitled to a preferential allocation which will allow them to retain their stake. While management refrained from making any comments about the issue price of the new shares, recent press reports have pointed to an offering price near ca € 1.0 per share.

Our assessment – The accelerated NPE reduction plan is in line with our base scenario reflected in our last note. On the P&L front, while projections appear reasonable separately, they end up to a C/I ratio below 45%, which seems somewhat challenging in our view, albeit not unrealistic. In this note, we take the €1.0 per share aired by several press reports as reference point and run various scenarios flexing the level of the issue price. Our scenario analysis points to decent upside for new investors, varying from c20% to c50% over the next year. We note that our current estimates/PT do not incorporate the upcoming capital increase nor AB’s new business plan.