EUR 850.00 For Business Accounts Only

Morningstar | DBK Updated Forecasts and Estimates from 01 Mar 2019

Deutsche Bank celebrates its first full-year accounting profit since 2014 of EUR 341 million, but the road to economic profits, which is what investors are ultimately looking for, continues to look long and winding to us. Profit before tax of EUR 1.3 billion was in line with our expectations and proved to be a more representative figure this year as tax-related one-off items of about EUR 400 million distorted the bottom-line figure. Excluding these specific items, return on equity came in at about 1%, which is a positive development for Deutsche, but given a cost of equity of 11%, we are not getting too excited just yet. Management targets a return on tangible equity of 4% for 2019, while we model just below 4% throughout our explicit forecast period. We lower our fair value estimate to EUR 9.2/$10.50 from EUR 12/$13.8 per share. Our no-moat and negative trend ratings remain intact.

Reorganizing an investment banking division, formerly Deutsche’s shining star, can be a difficult undertaking as revenue typically falls faster than cost reductions materialize. This also has been true for Deutsche, which saw its cost-to-income ratio increase by 4% over the full year in its corporate and investment banking (CIB) business, while profits before tax fell 52% year over year. Over the whole group, with a strong focus on CIB and private banking, cost reduction targets have been met. Full-year expenses came in below EUR 23 billion, largely owed to significant headcount reductions, giving management confidence to lower 2019 cost targets to EUR 21.8 billion. Looking at the development in the fourth quarter, where a large chunk of cost savings already materialized and more is to materialize in the coming quarters, we believe these revised targets are achievable. On the top line, however, continued restructuring and right sizing as well as a slowing global economy could form headwinds going forward.