IITSF - Intesa Sanpaolo Is Set For An Impressive Q1 Results

2023-04-19 05:49:24 ET

Summary

• Intesa Sanpaolo collects 14% of its net profit from foreign banks.
• Here at the Lab, we are estimating a solid interest margin and lower AuM and trading activities.
• The new accounting principles will decrease the CET1 ratio by 20 basis points. This is not a concern, and our buy rating is confirmed.

The earnings season has just kicked off on Wall Street, with Blackrock and JPMorgan among the major financial groups. From 24th April, Piazza Affari begins to detach dividends and in early May, the Italian banks will begin their financial release. UniCredit will start on May 2nd and the 5th, Intesa Sanpaolo (ISNPY) (IITSF) will also present its results. As we already did in the previous earning season , today we are back to comment on Intesa Q1 2023 expectations. Last time in mid-October, here at the Lab, we recorded a stellar performance of more than 59.20%.

Before providing our expectations, it is important to report some MACRO comments. Given the next meeting of the European Central Bank, the negotiations between hawks and doves are restarting. After the last 50-point hike in interest rates in March, the Governing Council has not given any indication of the next steps. ECB Governing Council member Latvia Martins Kazaks said that the board could opt for an interest rate hike by 25 basis points in May, although a half-point tightening cannot be ruled out. This is key to Intesa Sanpaolo's future earnings growth. Why?

According to our estimates, Intesa Sanpaolo will likely close the first quarter of 2023 with revenues of €5.86 billion, up 8.1% on a yearly basis, and operating costs of €2.77 billion, up 7.8% in 2022. In detail, looking at the top-line performance, total revenues are expected to increase by 8% mainly driven by the outstanding performance of Net Interest Income which we estimated will increase by 60% year-on-year to €3.1 billion thanks to the growth in margins due to the continuous rise in interest rates (and ECB above point).

On the other hand, net commissions are expected to drop by 7% on a yearly basis to €2.1 billion due to lower assets under management due to the negative market performance. Financial market volatility should also affect the bank's trading profits that we estimate at €233 million compared to €769 million recorded in 2022 first quarter. While our internal team foresees insurance policies sale at last year's rate (we estimated a stable profit at €400 million). On a negative note, Intesa operating costs are expected to grow by 8% compared to last year with an increase in expenses fueled by significant investments in new initiatives such as Isybank. However, we project a stable cost/income ratio of 46.5%. Loan write-downs are expected to decrease by 23% to €0.5 billion also because last year's figure included, in part, provisions of approximately €0.8 billion on Intesa Sanpaolo's exposure in Russia. For the above reason, we derive another stellar performance at the net profit level, and in our numbers, we record a plus 47% net income growth to almost €1.5 billion. The Fully Loaded CET 1 ratio is expected to decrease by 50 basis points compared to the previous quarter to 13.0%, of which 20 basis points due to the first impact of the application of the international accounting standards IAS/IFRS 17.

Another company's upside

Aside from the stellar results that we believe Intesa Sanpaolo will deliver, it is important to recall that the Italian leading bank is also growing abroad. In the last 3 years, the International Subsidiary Banks Division delivered total assets growth of almost 7% per year, and in 2022 alone, it achieved the 14% of ISP's net income. These were the results presented last Tuesday with a new business plan for the 2023-2025 period. The international division's business is carried out thanks to eleven commercial banks that operate in twelve countries. This is also coupled with the Chinese wealth management company called Yi Tsai, where Intesa also holds a minority stake in Penghua Asset Management and Qingdao Bank. The international division is made of a network of over 900 branches and is currently serving approximately 7 million customers. Various lines of action contributed to the achievement of the results, which resulted in the expansion of Investment Banking and Global Market activities, the positioning of the group as a reference partner for Italian SMEs, and the expansion of Wealth Management activities.

Conclusion and Valuation

Here at the Lab, we are confident that Intesa Sanpaolo will continue to benefit from the expansion of the interest margin and the favorable trends in asset quality. An upward revision of the 2023 guidance could be an advantage, and we confirm our target price of €2.6 per share released in our latest report called We Should Take Advantage . As a reminder, despite the baking crisis, ISP gained 16.6% since the beginning of the year.

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