Societe Generale: Why Morgan Stanley recommends waiting before betting on Societe Generale

(BFM Bourse) – The American bank went from “overweight” to “online weighting” on the action of the Defense Bank. If Morgan Stanley sees potential for the stock, it considers that it is better to wait for progress on asset sales to position itself.

Of the three major listed French banks, Société Générale is both the least expensive in terms of stock market multiples and the one with the greatest potential, according to several analysts. This is the case of UBS, which recommends buying the La Défense bank to change the trend in retail banking in France.

This was also the case for Morgan Stanley which was “overweight” until today. But the American establishment revised its opinion to “online weighting”, equivalent to “neutral” at home, while adjusting its target to 29 euros against 30 euros.

This weighs down the Société Générale share a little, which lost 1.35% around 3:30 p.m., showing the second most pronounced decline in the CAC 40.

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Upcoming asset transfer?

The American bank still sees revaluation potential for Société Générale shares based on its asset sales. Morgan Stanley recalls that the CET 1 capital ratio (equity compared to risk-weighted outstanding assets) constitutes a “hot topic” for the bank. According to Morgan Stanley projections, Société Générale would post a ratio below 13% in 2025.

However, the American bank estimates that the establishment led by Slawomir Krupa could generate between 175 basis points (1.75 percentage points) and 291 basis points, if it carried out all the disposals reported by various media. Which would also reduce its profits by 16%.

Societe Generale entered into negotiations at the end of 2023 to sell its shares in subsidiaries in Burkina Faso and Mozambique. Various media have also reported in recent months on projects for the Czech Republic, Morocco, Romania, its private bank in the United Kingdom, its securities businesses (Société Générale Securities Services) and its German subsidiary Hanseatic Bank.

“We believe that the sale of assets for a total amount of 50 to 100 basis points (CET 1 ratio, Editor's note) would be enough to draw a line under the capital issue, which should lead to a significant revaluation of the action, provided that the profitability of the retail banking activities in France, the corporate and investment bank and Ayvens (the long-term automobile financing subsidiary) also recover”, argues Morgan Stanley .

On the sidelines

However, the American bank believes that the market needs progress on these hypothetical transfers before integrating them. This could, for example, include a firm commitment from the management of Société Générale on a list of assets to be sold.

“Any tangible progress in terms of divestment would encourage us to reconsider the situation and, given the potential for 're-rating' (improvement in the stock's market multiples), we can afford to wait,” writes Morgan Stanley.

But for now, the lack of progress on disposals is causing it to remain on the sidelines, as is the poor dynamic in terms of results. Morgan Stanley expects “weak” accounts for the first quarter, with a still lackluster trend in retail banking in France.

“Although short-term trends are not as good as those of the sector, the broad restructuring of the group, including planned cost reductions, as well as the improvement of retail banking in France, should enable Societe Generale to achieve a ROTE (return on tangible equity, Editor's note) of 9% by 2026 (compared to 4.2% in 2023), judges Morgan Stanley.

Julien Marion – ©2024 BFM Bourse

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