Morningstar | Mediobanca's 3Q Revenue Slows Despite Robust Asset Growth
Mediobanca delivered net profit of EUR 176 million for the third quarter of its fiscal year; this was 15% lower than the EUR 206 million it produced in the third quarter of fiscal 2018. Mediobanca has a June year-end. Revenue declined 4% year on year as fee income and the portion of profits Mediobanca books from its 13% stake in Italian insurer Generali came under pressure. The slowdown in revenue is disappointing, given that Mediobanca increased its assets under management, which drives fees, by 5% compared with the end of March 2018. Mediobanca continued to optimize its capital utilization; despite its balance sheet growing by 8%, the company managed to shrink its risk-weighted assets by 2%. Capital adequacy therefore improved to a core equity Tier 1 ratio of 14.2%, from 13.9% on the last day of December 2018. The 8% year-on-year increase in loans outstanding is also not evident from the 1% increase in net interest income. We maintain our no-moat rating and EUR 10 fair value estimate.There was no indication of the long-term future of the Generali investment in Mediobanca's business. We continue to believe that the choices Mediobanca makes around the deployment of the capital currently tied up by Generali will drive the long-term value of the business. We do have sympathy for the view that while Generali trades at a discount to its own book value, it is not ideal for Mediobanca to reduce its interest in Generali. While the potential acquisition of Julius Baer's Italian asset manager, Kairos, makes strategic sense, Mediobanca should be careful not to overpay to appease an impatient market hungry for it to do large, transformational deals.
We like the Messier Maris & Associes acquisition that Mediobanca announced. It is a small, bolt-on acquisition that will strengthen Mediobanca's presence in its traditional area of strength: advising midmarket corporates on mergers and acquisitions. Messier Maris is a French business, but the cross-border activity between Italy and France is large enough for it to make sense to expand Mediobanca's geographical presence. Most important, this is a pure advisory business that will not put any strain on Mediobanca's balance sheet.
Mediobanca Banca Di Credito Finanzario's core businesses are lending and investment banking. Co. helps its clients by providing them with advisory services in addition to medium-term bank credit. Co. is the parent company of the Mediobanca Banking Group, which has operations in consumer credit, retail banking, leasing, and private banking. Co.'s business divisions are comprised of: Corporate and Investment Banking, which comprises Wholesale Banking and Private Banking; Principal Investing, which brings together all equity investments in associates (IAS28) and available for sale assets; and Retail and Consumer Banking, which comprises consumer credit and retail banking activities.
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