The strong recovery of shares in Greek banks during the last six months is noted by Goldman Sachs, according to its report.
The shares of Greek banks recovered strongly in the last 6 months with an average increase of 64%, Goldman Sachs points out in its analysis.
Progress
The ratings agency is “seeing” steady progress in terms of the so-called “3Cs”, i.e. capital raising, capital formation and coverage ratios against NPEs. According to the analysis, Greek banks’ ROTE/CET1 improved by 2.5 pp/1.4 pp. in 2022 on an annualized basis, while the coverage ratio reached 60% versus 52% in 2021. Goldman Sachs expects progress in the 3Cs to continue in 2023-24. A more forward-looking pace of rate hikes than previously expected is expected to improve earnings per share (EPS).
At the same time, the house notes that there is very large scope for further growth in the shares, to which it gives a “buy” recommendation, given that valuations remain at a large discount to book value.
Target prices
Specifically:
For National Bank, the target price is 5.2 euros (against 4.2 euros previously) and the recommendation remains “buy”. It has an upside of 29%
For Eurobank, the target price is 1.4 euros (versus 1.04 euros previously) and the recommendation remains “neutral”. It has an upside of 22%
For Alpha Bank the target price is 1.6 euros (against 1.19 euros previously) and the recommendation is kept “buy”. It has an upside of 40%
For Piraeus, the target price is 2.2 euros (against 1 euro previously) and the recommendation changes from “neutral” to “buy”. In other words, it has an upside of 39%
Beyond that, it highlights the picture at Piraeus where it expects the bank will achieve among the strongest levels of progress in CET1, ROTE and NPE coverage ratio over 2022-24 against the competition.
He also sees several near-term catalysts for Greek banks, including dividend announcements, possible guidance upgrades amid a stable macroeconomic outlook for 2023, revenue accruals from interest rate hikes and continued progress on the ‘3Cs’.
Dividends
Goldman Sachs expects that possible dividend announcements by National/Eurobank in Q1 2023 will strengthen the prospects of dividend reinstatements for Alpha/Piraeus and confirm that capital buffers are sufficient for the Greek banking system. While the agency expects Greek banks to benefit from rate hikes in the short term, any negative impact of rate cuts in the medium term (ie beyond Q3 2024) is likely to be mitigated by increased fee income.
Investment grade potential
At the same time, it records a relatively strong outlook for the economy in 2023, with the IMF forecasting Greece’s real GDP growth at 1.8%, one of the highest levels in relation to the Eurozone and CEEMEA (for which GS economists expect real GDP growth of 0.6%/1.5% in 2023). According to the house’s economists, Greek inflation remains below the euro zone average thanks mainly to two factors: the lower energy intensity of the Greek economy and the important fiscal measures related to energy (estimated at 5.7% of GDP in 2021-22) and likely to expand in 2023. They also expect the favorable macroeconomic environment and the long duration of European financial assistance to support the downward path of the debt-to-GDP ratio (towards 150% by 2025) increasing the possibility of the Greek public debt gaining an investment grade rating.
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