Analyzing Intesa Sanpaolo’s recent performance and outlook reveals a positive trajectory for investors. In the first half of 2023, the company showcased an impressive 80% increase in net profit compared to the previous year. This robust growth has prompted an upward adjustment to the net income projection for 2023, with an expected profit exceeding €7 billion. Notably, this optimistic outlook extends to the years 2024 and 2025 as well.
Several key indicators underscore the company’s strength and potential as an investment opportunity. Intesa Sanpaolo maintains a low cost of risk, boasts an exceptional cost-income ratio, and targets a zero non-performing loan (NPL) scenario. Additionally, a projected 11.4% dividend yield enhances the appeal for potential investors.
Turning our attention to the EU Stress Test results for Italian banks, it’s worth highlighting that despite challenging assumptions and a pessimistic economic scenario, Intesa Sanpaolo stands out with a relatively modest decline of -399 basis points in CET 1 ratio. When compared to European peers, particularly Germany and France, this performance is commendable.
Our confidence in Intesa Sanpaolo is grounded in a comprehensive analysis. We recognize the bank’s sound fundamentals, including a sturdy balance sheet with minimal levels of underperforming and non-performing assets, as well as a strong cost-to-income ratio. In light of challenging moments in the banking sector, such as the SVB and Credit Suisse crisis, we capitalized on a decline in stock price, bolstered by our favorable outlook.
Backed by a top-down analysis and the bank’s competitive strengths, our expectations for Intesa Sanpaolo’s net income have materialized. The bank is now poised to exceed €13.5 billion in net interest income for 2024 and achieve substantial net profit growth beyond €7 billion.
Examining the results for the second quarter, the company’s net profit of €4.22 billion in H1 2023, marking an 80% YoY increase, is impressive. This performance was propelled by a notable rise in net interest income, partially offset by a minor decrease in net commission performance. Looking ahead, Intesa Sanpaolo is on track to create shareholders’ value, with a 2024 target of €5.8 billion in remuneration. Moreover, operational efficiency is evident in the cost-to-income ratio of 42%, a standout figure among European banks.
The trajectory of cost of risk is also noteworthy, dropping to 25 basis points from 70 basis points in 2022. Although excluding Russian de-risking reveals a slightly higher figure, the bank’s positive trajectory remains intact. Notably, the bank’s credit quality has improved, with a decline in non-performing loans and a gross incidence of non-performing loans at 1.2%.
Intesa Sanpaolo’s capital solidity remains robust, with the Common Equity Tier 1 ratio reaching 13.7% by June-end. This reinforces the bank’s position in relation to regulatory requirements.
In conclusion, Intesa Sanpaolo’s strong performance in H1 2023 has prompted an upward revision in its net income projection for the years ahead. Factors driving this outlook include revenue growth, reduced costs, and an advantageous cost of risk, all complemented by favorable tax considerations. With these factors in mind, our target price of €2.7 per share remains steady, reflecting a Tangible Book Value of 0.85x on 2024 accounts and a Return on Tangible Equity (RoTE) of 14.5%. Moreover, our projected dividend yield of 11.4% further underlines our confident “buy” recommendation.
