Value plays unloved for external uncertainties
Italian banks’ average discount further widened in the last month to 32% from 30% (0.44x PTBV17E vs. 0.65x PTBV17E for Eurozone peers). The average profitability lags behind at 6.4% RoTNAV17E, with profitability 21% lower than Eurozone peers, implying ~12% relative valuation discount, at an all-time low level. (i) political uncertainties; (ii) high NPLs stock and (iii) persistent risk of industry paid bail-out fund harming the systemic risk perceptions keep Italian banks off investors' radar. Given that the political uncertainties won’t be dispelled until December 4th with the Referendum outcome, Italian banks will remain unloved among European banks. The sharp discount would suggest that a negative outcome for the referendum seems partly priced-in (unlike the UK referendum), but we suggest caution.