EUR 300.00 For Business Accounts Only

National Bank | Strong post repair

Strategy update – Management announced an updated set of targets envisaging a clean (NPE ratio at 6%), strong (CET1 >16%) and profitable (cRoE at 9%) bank by 2022. Overall, we find management’s targets realistic given the positive recent track record and the healthy prospects ahead. More importantly, the targets provide investors with much needed visibility after a period in which lack of visibility was a key problem weighing on the investment case. A key strategic challenge for the group is the deployment of liquidity and capital post clean-up, we believe.

NPE ratio at 6% in 2022, CET 1 above 16% – The group’s updated NPE reduction plan aims at a 6% NPE ratio (€ 1.8bn) by the end of 2022, from 13.6% at YE 2020 (pf for Frontier), while the CET 1 ratio is expected to shape above 16% (FL CET 1 >15%), well above regulatory requirements. National Bank’s good track record suggests high probability of success, although our estimates are a bit more conservative, expecting somewhat higher NPE inflows (>€ 1bn vs € 0.6bn) due to the pandemic and higher inorganic transactions (€2.0bn vs € 1.5bn) to attain its targets.

Target for core RoE at 9% in 2022 – Management aims at achieving a 9% core RoE in 2022 mainly driven by a reduction of the CoR to 60bps as well as a € 70mn curtailment in operating expenses, which will offset an estimated € 30mn reduction from core revenue generation. Our estimates are slightly more conservative on all fronts, expecting a mild pressure in NII (-4% CAGR by 2022), higher F&C income (8% CAGR) and further cost reduction (-4% CAGR), although not materially different than management’s projections.

Higher earnings estimates on higher revenues, lower opex – Our new estimates for NBG include: i) slightly higher core revenue in 2022-23, ii) higher trading income for 2021, iii) lower operating expenses, iv) higher cost of risk for 2021-22 to facilitate the group’s updated NPE reduction plan, but lower thereafter, and v) a lower effective tax rate. Our PPI for 2022-23 is thus lifted by 6% on average vs our previous estimates, while our net income estimates are 28% higher than before, reflecting the frontloading of the balance sheet repair. Based on the above, we expect the group’s RoE to reach 8% in 2022 (vs the 9% core RoE target), and 9% in 2023.

Valuation – We have raised our 12m TP to €3.23 from €2.73 previously, reflecting a 0.6x P/TBV on 2022 estimates, as a result of the aforementioned earnings upgrades. We reiterate our ‘Buy’ rating, as we believe NBG offers strong fundamentals even on a post clean-up basis and decent profitability prospects, while its valuation, at 0.45 P/TBV on 2022 estimates suggests further upside potential when compared to other EU periphery peers with similar characteristics. We retain NBG in our top picks list.