SCGLF - Societe Generale: A Call Option On Improving Profitability

2024-02-08 16:55:47 ET

Summary

• Societe Generale delivered a paltry 1.7% RoTE in Q4 (2023: 4.2%). 2024 RoTE outlook is set at over 6%.
• The weak 2023 performance was largely due to lackluster results in the French Retail, Private Banking and Insurance division, as well as 720 million EUR in transformation costs.
• Subsidiaries in Europe trade well above Societe Generale's valuation, implying sum-of-the-parts upside potential.
• Expiration of interest rate hedges and declining transformation charges put the bank on a stable path of improving profitability.

Introduction

I previously covered Societe Gener ale's ( OTCPK:SCGLF ) Investor Day back in September 2023 where I argued that despite a lower profitability target compared to peers such as BNP Paribas ( OTCQX:BNPQF ) and Credit Agricole ( OTCPK:CRARF ), Societe Generale still made sense as an investment due to its lower valuation. Since then both SocGen and BNP have moved lower, with only Credit Agricole managing to generate gains:

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