(BFM Bourse) – The La Défense bank presented new targets this Monday morning during a day dedicated to investors. Its revenue and return on equity targets disappoint. The stock, like that of its subsidiary ALD, plunged on the stock market.
Societe Generale makes value creation the number one priority of its strategy. The Banque de la Défense is organizing an investor day this Monday during which it strives to convince the market that it can catch up on the stock market.
Because from the sixth slide of its presentation, the red and black establishment highlights its stock market discount. The value of its tangible book value has increased by 50% since 2010 when its stock has fallen by 50% over the same period. Thus, according to its presentation, based on a price of 26 euros, its share trades at 0.4 times the value of its balance sheet compared to 0.8 times for its comparables (BNP Paribas, Barclays, Crédit Agricole SA, UBS, Unicredit, HSBC, ING, Santander, Deutsche Bank).
The work that awaits the new general director, Slawomir Krupa, is therefore substantial.
But for the moment the market does not appreciate the new objectives which were communicated this morning, ahead of today. Société Générale shares dropped 7% around 10:45 a.m. and its long-term automobile rental subsidiary, ALD, which also delivered new medium-term objectives, collapsed by 12.1%.
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“Disappointing”
Jefferies bank explains that this plan does not meet its expectations. Ditto for Royal Bank of Canada. “The financial objectives and planned capital distribution based on the capital trajectory presented appear prudent” and “do not imply an upward revision of consensus estimates at this stage,” argues the Canadian bank.
“Disappointing”, asserts KBW in the title of its note devoted to the announcements from Société Générale.
To improve its profitability, Société Générale will notably tighten its costs. The company is therefore aiming for an operating coefficient (expenses divided by net banking income to simplify) of less than 60% in 2026, compared to 66% last year.
To achieve this, the bank’s gross cost base will be reduced by 1.7 billion euros, thanks in particular to the synergies generated by the merger between the retail banking networks in France of Société Générale and Crédit du Nord (now united under the “SG” banner), to those generated via the takeover of the Dutch LeasePlan by ALD, or even via savings made by improving the efficiency of IT structures. This last lever alone should generate gross savings of 600 million euros over the period 2023-2026.
Growth below expectations
In terms of revenue, Société Générale indicates that it is targeting growth of between 0% and 2% on average each year between 2022 and 2026. This modest increase is explained in particular because the bank wishes to limit risks, by increasing the growth of its RWA , i.e. risk-weighted assets, by less than 1% per year over the period 2024-2026, on a comparable basis. This figure even drops to zero, excluding Boursorama and ALD.
Jefferies emphasizes that this growth trajectory turns out to be disappointing, because the consensus was counting on 2.7% over the period and the establishment itself on 3.6%. The bank calculates, on the basis of certain assumptions, that Société Générale’s medium-term targets imply earnings per share of just over 7 euros in 2026, while the consensus was counting on 7.19 euros and it -even on 8.46 euros.
“The absence of revenue growth surprises us. The objectives of this day dedicated to investors are clearly not those that we expected. For us, SocGen should be, from 2024, a story of revenue growth higher than that of from the rest of the sector, thanks to its more diversified profile”, develops Jefferies.
In addition to the revenue trajectory, Jefferies says it is “negatively surprised” by “the increase in the capital objective, the reduction in payout (the dividend distribution ratio, Editor’s note) and ROTE (return on tangible equity)” .
Indeed, Société Générale has also indicated its profitability and solvency targets. The bank plans to achieve a CET 1 capital ratio of 13% in 2026 under the Basel IV standard (prudential rules which ensure that banks are sufficiently capitalized in times of crisis). The establishment previously targeted a ratio of 12% in 2025.
More than 8 million customers for Boursorama
As for ROTE, a key measure of bank profitability in terms of equity, Société Générale expects a rate of between 9% and 10% in 2026, compared to 2.5% in 2022, excluding the impact of the sale of its activities in Russia. But here again, Société Générale previously targeted 10% in 2025.
“The new objective, while the bank previously targeted a rate of return of 10% in 2025, will disappoint expectations which had been high. It is also lower than the objective of 12% set by peers”, underlines KBW.
Furthermore, Société Générale intends to achieve a return to its shareholders (dividends and share buybacks) representing between 40% and 50% of its published net profit. According to Jefferies, this rate previously stood at 50% of adjusted profit.
Last potential source of disappointment: the absence of an explicit commitment to sell assets, which may have been hoped for by certain design offices. “There doesn’t seem to be too much tangible around likely asset sales (African assets, securities services),” notes KBW.
As for Société Générale subsidiaries, Boursorama intends to reach more than 8 million customers in 2026 (compared to around 5 million currently) and a net profit of more than 300 million euros in 2026. ALD, for its part, intends to achieve at an operating ratio excluding the resale of used vehicles of around 52%. The long-term car rental group is targeting a ROTE of 13% to 15% in 2026.
The bank has also indicated that it wants to reduce its exposure to the gas and oil production sector by 80% in 2030 compared to 2019, with an intermediate step of -50% in 2025.
Not all elements of this plan are judged negatively by analysts. UBS appreciates the fact that Société Générale is committed to achieving a higher CET1 capital ratio.
Although somewhat disappointed, Jefferies believes that if Société Générale achieves its ROTE objectives while respecting that of the capital ratio, its stock could experience a significant “re-rating”, that is to say an improvement in its multiples. valuation.
Obviously there remains the question of execution. But “a plan focused on cost control rather than revenue growth (the latter scenario having disappointed in most previous cases) can be considered to have more chances of success,” judges Jefferies.
Julien Marion – ©2023 BFM Bourse
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