(BFM Bourse) – The American bank has gone from “neutral” to “sell” on the stock because it judges that the action does not present a factor likely to trigger an increase in the months to come, with constrained flexibility on its capital.
Of the three banks present on the CAC 40, Société Générale is undoubtedly the big loser of 2023 on the stock market, so far. The La Défense establishment has seen a decline of 2.9% since the start of the year when BNP Paribas is up 9% and Crédit Agricole SA is up 22.7%.
Societe Generale especially scalded the market during a day dedicated to investors during which the bank presented disappointing objectives, particularly in terms of revenue growth, with a lowering of its shareholder return prospects. .
Certainly, the action is now cheap on the stock market. But as Goldman Sachs noted this Friday, this low valuation is located in a sector (banks) which is itself depreciated, with Societe Generale shares trading around 6 times its expected earnings per share in 2024, a multiple in line with eurozone banks.
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Little flexibility on capital
And, in its note published this Friday, Goldman Sachs does not see any catalyst that could justify a reappreciation of Societe Generale’s stock market multiples. As a result, the American establishment lowered its opinion to “sell” from “neutral” previously, with a price target of 22.5 euros.
Without collapsing, Société Générale shares are penalized by the lowering of Goldman Sachs’ recommendation. In a rising market, with the CAC 40 gaining 0.4%, Société Générale lost 1% around 11:45 a.m., showing the second largest drop in the CAC 40, after falling by more than 2% at the start of the session.
According to Goldman Sachs, Société Générale has limited room for maneuver in terms of capital. The French bank plans to achieve a CET1 solvency ratio of 13% in 2026, an objective that the research office certainly considers credible.
But for all that, Société Générale has little flexibility. Societe Generale posted a ratio of 13.2% at the end of September. According to Goldman Sachs, the bank’s management expects to record by 2025 a negative cumulative impact of 135 basis points (1.35%) linked to the implementation of the new regulation known as “Basel IV” ( prudential rules which ensure that banks are sufficiently capitalized in times of crisis). As a result, Goldman Sachs estimates that this CET 1 ratio will fall to 12.6% in 2025.
“This limits the room for maneuver that we see for additional investments or distribution measures (to shareholders, Editor’s note), which could support a re-rating (an improvement in stock market multiples) of the stock,” explains Goldman Sachs.
A recovery in retail banking that will not be enough
Another point: Société Générale was cautious about its revenue forecasts during its investor day, counting on growth of between only 0% and 2% per year between 2022 and 2026. But where the consensus chose to retain the mid-range of this forecast (0.9% according to the Visible Alpha consensus), Goldman Sachs is counting on 0.3%.
This forecast includes a recovery, from the second half of 2024, of net interest income in retail banking in France, which has suffered greatly from the particularities of the French system (increase in the remuneration of regulated savings, which weighs on resources, as well as loans at fixed rates, which does not allow the income of French banks to quickly benefit from the increase in interest rates).
“Although this is supposed to constitute a positive element (for the action Editor’s note) we believe that this recovery is already widely anticipated by the consensus, and that it will occur in a context of reduction of the key rates of the European Central Bank ( BCE)”, however warns Goldman Sachs.
“These two elements limit the possibility that the improvement in net interest income in France will lead to a recovery in the stock, in our opinion,” adds the American bank.
All of this makes Societe Generale unattractive in the eyes of the American establishment. Especially since its distribution ratio of net profit to shareholders is planned between 40% and 45%, compared to 70% on average for the entire sector over the period 2023-2026. As for its revenue growth forecast (0% to 2% per year therefore) it pales in comparison to the average of 5% for banks in the euro zone, according to forecasts from Goldman Sachs, for 2022-2026 .
Finally, the forecast return on tangible equity (ROTE), a key indicator in the sector, between 9% and 10% in 2026, is lower than that of its comparable companies, underlines Goldman Sachs.
Julien Marion – ©2023 BFM Bourse
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