Credit agricole: Analysts are doing a big spring cleaning on listed French banks

(BFM Bourse) – Deutsche Bank lowered its recommendation to “hold” on Société Générale but moved to the equivalent of buying on Crédit Agricole SA. Morgan Stanley, on the contrary, revised its advice to “underweight” on the mutual bank.

French banks are not very popular with the market. Their stock market performance continues to lag behind their euro zone counterparts, with their price increasing from 0.5% (Société Générale) to 5% (Crédit Agricole SA) over the whole of 2024, when the pan-European Euro Stoxx Banks index gained 14.7% over the same period.

Analysts nevertheless agree on the fact that French establishments have potential on the stock market. But which horse should you bet on?

UBS chose Société Générale, judging that the La Défense bank will benefit the most from the reversal of the (bad) trend in retail banking in France. On Monday, Morgan Stanley, on the contrary, lowered its advice on the red and black bank, going from “buy” (“overweight”) to the equivalent of “neutral” for it (“online weighting”) because it judges that progress on disposals must be observed before positioning on the stock.

On Tuesday, Goldman Sachs purchased BNP Paribas because the American establishment believes that the rue d'Antin bank can meet its objectives and thus surprise the market thanks to the rise in power of its financing bank and investment.

New changes of opinion this Wednesday. Deutsche Bank has decided to review its hierarchy among French banks.

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Societe Generale takes time on disposals

The German establishment went from “buy” to “hold” on Société Générale. Until now, Deutsche Bank was positive about the La Défense bank. Even if the strategic plan presented in September by the La Défense bank was not very ambitious (it had also largely disappointed the market), the German establishment saw structural improvements in it, appreciating the emphasis placed on profit, costs and the simplification of its structure.

But Deutsche Bank also hoped that Société Générale would accelerate the pace on sales of non-strategic assets. This is where the problem lies. “So far, the progress made in terms of disposals of non-strategic assets has been disappointing in our opinion, both in terms of the execution schedule and the company's ambitions within its scope,” judges the bank. German.

The group entered into exclusive negotiations in December to sell its shares in subsidiaries in Mozambique and Burkina Faso. But numerous press reports have reported other potential transactions, such as the sale of its private bank in the United Kingdom, its securities businesses, or even its German subsidiary Hanseatic Bank.

Furthermore, on the operational level, “we believe that we would have to wait another 15 to 18 months to (see) significant progress in the recovery plan” of Société Générale, judges Deutsche Bank.

“In our opinion, the significant operational improvements resulting from the merger of the French distribution networks (Crédit du Nord and Société Générale, Editor's note) and the merger of ALD and LeasePlan (to form Ayvens, specialist in long-term automobile financing) could not occur only at the end of 2025 or later, while the positive contribution of BoursoBank would only occur in 2026. The continuation of organic growth throughout the group is hampered by its high needs in capital”, develops Deutsche Bank.

Crédit Agricole SA, the right move for Deutsche Bank….

The establishment also confirmed its purchase opinion on BNP Paribas, with Deutsche Bank expecting an increase in its profit each year until 2026 (of 8% on average). It also highlights the diversification of its income, the resilience of its results as well as its better shareholder remuneration, compared to its French competitors.

However, his preferred French bank is now Crédit Agricole SA (CASA). Deutsche Bank moved from “hold” to “buy” on the mutual bank’s listed structure.

“The combination of an improved economic environment, central banks announcing imminent rate cuts and recent market tailwinds is a tailor-made situation for a bank like CASA to prosper and deliver attractive profitability, given its higher weight in 'asset light' activities”, develops Deutsche Bank.

According to her, 40% of CASA's profit comes from activities that are not very capital-intensive (such as insurance, asset or wealth management, a business in which it recently bought the Belgian Degroof Petercam) which thus only represent 15% of its risk-weighted assets. The drop in key rates should also benefit its “personal finance” branch, i.e. personal or consumer loans, and lead to an increase in credit volumes in retail banking.

This more favorable environment makes Deutsche Bank even more confident in the ability of Crédit Agricole SA to exceed its 2025 objectives, i.e. a net profit of more than 6 billion euros and a higher return on tangible equity ( ROTE) at 12%. Deutsche Bank, for its part, expects a profit of 6.52 billion euros and an ROTE of more than 12%.

….But not for Morgan Stanley

Coincidentally, Morgan Stanley also published a note this Wednesday dedicated to French (and Benelux) banks.

In this note, the American establishment, contrary to Deutsche Bank, lowered its opinion to “underweight” on CASA against “online weighting” previously, which amounts to going from “neutral” to “sell”.

“Fundamentally, we consider CASA to be a high quality bank, with the best mix of activities in France, but we consider that the valuation is less attractive compared to the rest of the sector, and that the trends in results are less conducive to forecast increases” from the consensus, explains Morgan Stanley.

The green bank trades at 7.1 times expected profits in 2025 compared to 6.9 times for its sector, but with a lower return to shareholders (dividend and share buybacks), with a yield of 8% to 8.5% compared to 10% to 11% for the entire industry, points out the American bank.

Note that all these changes in opinions and targets do not create a stir for banks on the stock market. CASA takes 0.3% around 3:15 p.m., Société Générale advances 0.4% and BNP Paribas gains 1.2%.

Julien Marion – ©2024 BFM Bourse

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