1H22 Figures in Line with Budget Expectations
* 2Q22 results: IF reported net banking income broadly in line with our estimates thanks to resilient NII (positively affected by a Eu7.5mn one-off benefit linked to TLTRO III) and solid commissions. Looking at the QoQ comparison, the NBI decline (-1.5%) is mainly attributable to a lower contribution from trading activity (which was particularly strong in 1Q22). As for operating costs, they were slightly above our assumptions and include Eu5mn of FITD&SRF costs (fully offset by risk provision release) as well as Eu23mn of variable costs linked to NPL recovery. The cost of risk was flat QoQ and below our assumptions, in spite of a Eu3mn provision booked on some older vintage exposure in the commercial banking business. Net income came in at Eu38mn, positively affected by a write-back on an NPL GACS portfolio (Eu6mn).
* CET1 ratio trend: the CET1 ratio stood at 14.9%, down 80bp QoQ due to a negative impact from the mark-to-market of OCI reserves (-13bp) and a degree of RWA inflation (-67bp) linked both to the application of the new definition of default as well as business origination. However, on a pro-forma basisthe CET1 ratio would be 15.9%, including the change in the weight of RWA on the acquired NPL portfolios (+75bp) and a positive impact linked to the recognition of some loans to the Italian public healthcare system (+24bp). Factoring in these moving parts, the CEO expects the FY figure to come in comfortably above the 15% threshold.
* Conference call feedback: i) FY guidance reiterated – the CEO reiterated the FY net income guidance, as for the time being actual results are in line with or slightly above the budget thanks to a solid revenues trend; ii) Cost of risk – no major deterioration has been observed in asset quality yet; in the event of a severe macro slowdown, the bank could rely on some unused provisions booked in 2020-2021; iii) potential upside deriving from the hike in interest rates – the bank reiterated a positive correlation to interest rates, highlighting potential upside of Eu30-45mn on NII from each +100bp shift over the course of the business plan; iv) NPL market – as for NPL markets, the CEO expects transactions to pick up in in the second part of the year, with interesting levels of competition, although this is not expect to have any drastic impact on prices.
* Change in estimates: we are confirming our FY22 estimates, as they seem consistent with the quarterly release and the messages provided by top management. In particular, we project net income of Eu118mn (in line with the business plan assumptions) and a CET1 ratio of 15.8%. Depending on macro and business trends we see potential downside risk to our NII estimates, broadly offset by the upside from a potential downward revision to the cost of risk. For the time being, we are also reiterating our 2023/2024 estimates.
* NEUTRAL reiterated, Eu17.7 TP. While we highlight that the bank has a much stronger capital position than in the past, enhancing visibility on dividend distribution as well as making it well placed to absorb economic downturns, we must also consider the potential threat from the unfolding economic scenario. For this reason, we prefer to reiterate our NEUTRAL view on the stock with a target price of Eu17.70.
Intermonte-BANCA-IFIS-Company-Research-Report-220805.pdf