Initiating on Natixis and CASA with Outperform; BNP and SocGen with Neutral
Earnings diversification supports better-than-average earnings momentum among French banks. Natixis and CASA (after selling the regional banks stake) get 65% and 55% respectively from the high ROTE and less rate-sensitive businesses of asset gathering and financial services. Our 2017/18 EPS forecasts are 5-7% ahead of consensus at Natixis and 3% ahead at CASA. This also gives upside on DPS forecasts, especially CASA. Our DuPont analysis of sector ROTEs highlights why lower capital requirements are key to French profitability and why we are sceptical of cost plans. We think mutually owned Natixis and CASA should sustain the highest yield expectations (top 3 in the sector) and this along with lower interest rate sensitivity places them alongside our other top picks in the sector.
■ Credit Agricole SA: Initiating with an Outperform and €11 TP: After the regional banks sale in Q3 we see multiple expansion to match the higher ROTE business mix and ability to raise the payout from 50% to 60%.
■ Natixis: Initiating with an Outperform and €5.0 TP: We see upside in Investment Solutions earnings. An asset-light mix and mutual ownership give Natixis the highest ROTE and payout potential among the four banks.
■ BNP Paribas: Initiating with a Neutral rating and €50 TP: Although EPS forecasts have benefited from a solid corporate centre, a larger ECB SREP capital gap should limit increases in dividend payout, in our view.
■ Societe Generale: Initiating with a Neutral rating and €35 TP: The low P/TBV multiple is underpinned by the lowest ROTE forecast in the group due to the drag from CIB, French retail (30% of earnings) and some International businesses.