(BFM Bourse) – The La Défense bank posted the best performance in the CAC 40 during this results season. The establishment will have to confirm its good momentum over the coming quarters. But analysts are confident.
A “positive shock of confidence”. This is what Société Générale sent with the publication of its third quarter results last week, according to UBS.
The La Défense bank delivered performances appreciated by the market, with good surprises almost at all levels, whether in its Corporate and Investment Banking division or in retail banking. “Societe Generale has made the progress we want to see,” summarized Jefferies.
>> Access our exclusive graphic analyses, and gain insight into the Trading Portfolio
The best performance of the CAC 40 on quarterly results
The market has been waiting for a clearing up from Société Générale for a long time. In 2023, the shares of the red and black bank had only gained 2.3%, remaining at a distance from the increases of BNP Paribas (+17.5%) and Crédit Agricole SA (+30.7%).
The first meetings with the Stock Exchange of Slawomir Krupa, who succeeded Frédéric Oudéa at the head of the establishment in May 2023, were sometimes frosty. The day dedicated to investors in September 2023, marked by cautious objectives on revenue growth, resulted in a heavy sanction (the stock fell 12%). Publications for the first quarter (-5.2%) and second quarter (-9%) of 2024 also gave rise to corrections.
The copy delivered last week by Société Générale was, this time, warmly received. The stock jumped 11.33% following the third quarter results. It's simple: as shown in the infographic below, the bank posted the best performance of the CAC 40 – that is to say the strongest increase following a publication – during this season of third party results. quarter. Renault, second with an increase of 4.7%, is far behind.
Retail banking in France is doing better
Investors have been waiting for several quarters for retail banking in France to show a positive turnaround. This point is important because Société Générale is much more exposed to this segment than its counterparts. According to UBS, retail banking in France represents 32% of its revenues and 20% of its gross operating income, compared to respectively 14% and 11% for BNP Paribas and 15% and 13% for Crédit Agricole SA.
For many quarters, Société Générale was weighed down by the specificities of the French market, with loans at fixed rates, which means that the establishment only gradually benefits from the rise in interest rates, while its outstanding debts credit are changing with loans at higher rates. On the other hand, it had to immediately pass on the better remuneration of tax-free savings accounts (livret A, LDDS) to its customers' accounts.
In addition, Société Générale chose to hedge against a drop in rates, when on the contrary they have increased at full speed. This coverage turned out to be costly, removing for example 150 million euros in the second quarter of 2024 in net interest income (the money that the company earns on loans, i.e. the difference between the interest received and the interest paid on deposits) in retail banking in France.
But this poison stopped producing its effects in the third trimester. And the net interest margin in retail banking in France has rebounded. Net interest income amounted to 1.06 billion euros, compared to 797 million euros a year earlier. Ultimately, the profit of the “retail banking in France, private banking and insurance” division exceeded expectations by 23%, noted Jefferies.
“The main driver of Societe Generale's double-digit revenue growth this quarter was its French retail banking unit, which rose from the grave by delivering its best quarter since the second quarter of 2022,” the office noted. independent studies Alphavalue.
Optimistic analysts
The start of Societe Generale's stock market awakening obviously needs to be confirmed, given the previous disappointments that have surrounded the bank's career. Especially since, as L'Agefi noted, Slawomir Krupa has chosen to tighten the management and operational teams around his hand, which places the manager more than ever on the front line.
Does the bank have the means to confirm the test? Analysts are, in any case, optimistic. More than before. Jefferies judged that last week's publication “marked a turning point in the investment thesis” on Société Générale.
Several design offices have revised their opinion on the file. Citi went from “neutral” to “buy” on the stock on Monday. On Friday, November 1, Morgan Stanley raised its advice on the stock to “overweight” (equivalent to buy), compared to “online weighting” previously.
The American bank cites several arguments justifying its position on the stock. Firstly, “the tide is turning” in retail banking in France. And Morgan Stanley expects net interest income to continue to grow in 2025, going against the trend in the euro zone where the American establishment expects a drop of 2%, on average. This will be made possible in particular by an improvement in the average yield on outstanding real estate loans and by the reduction in interest-bearing deposit rates (livret A), she anticipates.
Secondly, Morgan Stanley argues that the company is progressing well with its asset sales and has succeeded in strengthening its capital and therefore its CET 1 solvency ratio (which relates equity to risk-weighted outstandings). With other potential disposals to come and a CET 1 ratio already above 13% (13.2% at the end of September) the bank could distribute 50% of its net profit to its shareholders. And achieving such a ratio “would give confidence” to the market “on the trajectory of capital”, judges Morgan Stanley.
This optimism is shared by Bank of America for whom “patience has started to pay off” on Société Générale. The American establishment estimates that profit will double in 2024 and will increase further next year thanks to several factors.
The first remains the “retail banking in France, private banking and insurance” division, which should notably benefit from a recovery in credit volumes and be less penalized by regulated savings with the reduction in key rates from the European Central Bank. . The “mobility and financial services” division should be driven by higher margins at Ayvens, its division dedicated to long-term automobile financing.
Finally, its corporate and investment banking division (called “major client banking and investor solutions” at Société Générale) should continue to record healthy growth, with revenues expected to increase by 2% on average over the period 2023- 2026 by the American establishment. Furthermore, Bank of America judges, like Morgan Stanley, that Société Générale should achieve a distribution rate of 50%, in the form of dividends and share buybacks.
“We remain positive on the stock given the emerging positive dynamic and the discounted valuation of the bank,” judges Alphavalue for its part.
Julien Marion – ©2024 BFM Bourse
Are you following this action?
Receive all the information on SOCIETE GENERALE in real time:
