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ABN AMRO Bank N.V.

Financial Services

Research

  • Buy by alpha (15/02/2024)
    • 17.50 +22.16% by 01/03/2025

    ABN is a Dutch bank with Retail banking, Wealth management and Corporate banking services in North-West Europe. Income comes mostly from NII, of which 90% in the Netherlands.

    A forward looking annual net profit of >€2B in 2024 gives a valuation of 6x PE at €12B market cap. 2024 results will depend on cost control and the interest rate climate.

    ABN is a buy with a 10% annual dividend yield (50% payout) plus €500M share buyback in 2024. And the low 0.6 PB ratio makes it an attractive investment.

  • Valuation (2)
    • Price to book

      The book value is $25/share based on $24B total equity. The PB ratio 0.6 is historical low and justifies a continued shares buyback until a minimal PB ratio of 0.8. This would result in a share price of €20.

      The shares buyback is subject to minimal capital requirements and regulatory approval. The bank aims to lower Risk-Weighted-Assets add-on's and Basel IV capital requirements. Under profitable market conditions future share buyback programs can be expected.

      15/02/2024 by ALPHA
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    • PE multiple-expansion

      ABN currently has a low price-to-earnings ratio of 6x forward looking earning of €2B (€2.3/share). The valuation is 20% lower than industry average (7.6x) and its historical valuation. A recovery of the PE multiple supports a target price of $17.50 (with a safety margin from €500M share buyback in 2024).

      15/02/2024 by ALPHA
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  • Business (2)
    • Net interest income

      NII developed strongly in 2022/2023 and NII is expected to be flat in 2024. Positive drivers are growth in Wealth management deposits and increased market share in Commercial banking. Net interest margin is expected to be under pressure from competition. Also clients improve allocations at the cost of net interest margin and NII.

      15/02/2024 by ALPHA
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    • OPERATIONAL costs

      Management indicated a cost level of €5.3B for 2024. This could be too positive the cost level was almost €1.4B in Q4'23 (excl. incidental). Q4'23 shows a significant $130M increase in Other expenses. Since management earlier cancelled a cost savings target there is a risk for lack of cost control.

      ABN had a cost saving target for 2024 of €4.7B, which has been cancelled under 2023.

      Regulatory efforts on compliance (for AML), model development and (model) data quality are high and driving costs. In the short term 1-2 years I do not expect much cost savings.

      Cost control will be an important factor to support the share price in the coming years.

      15/02/2024 by ALPHA
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  • People (1)
    • On the 2023Q3 conference the CEO gave very good answers, the CFO answers could in some cases have been improved. In gereneral they seem like a good management team.

      17/11/2023 by MICKE
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  • Financial (1)
    • Results OVERVIEW

      ABN has delivered a solid performance in the past years. In the current economic climate the conditions are positive for a continued solid performance.

      Period

      NII

      OPEX

      Net income

      ROE

      Comment

      2023-Q4

      1.504

      1.381

      545

      9.5%

      Expected representative for 2024

      2023-Q3

      1.533

      1.228

      759

      13.6%

      Lower NIM and asset sales gains

      2023-Q2

      1.604

      1.137

      870

      16.0%

      €67M impairment release

      2023-Q1

      1.620

      1.406

      523

      9.6%

      Seasonal high regulatory fees

      2022-Q4

      1.504

      1.343

      354

      8.7%


      2022-Q3

      1.314

      1.254

      743

      13.9%


      2022-Q2

      1.232

      1.321

      475

      8.8%


      2022-Q1

      1.266

      1.508

      295

      5.4%

      €62M extra impairment

      15/02/2024 by ALPHA
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  • Risks (2)
    • Additional bank taxes

      New bank tax regulations could reduce net-income after tax. For now I consider the risk to be low.

      16/02/2024 by ALPHA
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    • Economic downturn

      In an economic downturn banks increase reservation based reserve and risk management policies. This would have a negative impact on the net income, also when losses do not materialize.

      In 2024 the target is lowered to 15-20bps (20bps) through the cycle.

      Cost of risks are at low levels at the moment. The bank has a 60% management overlay given the geopolitical uncertainties.

      Although bankruptcy is rising from very low Post-COVID levels, I do not expect a direct increase in impairment costs.

      15/02/2024 by ALPHA
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