Beta Sec.-Eurobank (Q2:21 results review): A good set of results coming above our estimates


Eurobank (Q2:21 results review): Eurobank announced a good set of results coming above our estimates. The beat is attributed to higher fee income and lower provisioning courtesy of better loans under moratoria performance. Eurobank updated its guidance for the rest of 2021 providing some fresh positive outlook. In more details:

§  Net interest income fell by 2.8% in H1:21 to €670m, but grew marginally (+0.1%) against Q1:21 to €335m. The net interest margin receded to 1.94% in H1:21, from 2.09% the respective period of 2020. New loan disbursements in Greece reached €3.4bn in H1:21 and €1.8bn in Q2:21. Total gross loans amounted to €41.1bn at the end of June, including €3.5bn senior notes. Corporate loans amounted to €22.6bn, mortgages to €11.5bn and consumer loans to €3.4bn.

§  Net fee and commission income expanded by 16.0% y-o-y in H1:21 to €209m, mainly due to fees from Network activities, rental income and lending business. Fee and commission income rose by 11.8% q-o-q to €110m and accounted for 63 basis points of total assets in Q2:21.

§  The increase in fee and commission income more than offset net interest income reduction, thus core income rose by 1.1% y-o-y to €879m in H1:21. Other income amounted to €45m in H1:21, compared to €66m in H1:20. Total operating income reached €924m in H1:21, down 1.2% y-o-y. o Operating expenses decreased by 0.4% in Greece and 0.1% at a Group level against H1:20 to €433m. The cost to income ratio remained well below the 50% threshold at 46.9%.

§  Core pre-provision income were up by 2.4% y-o-y and 4.5% q-o-q. Pre-provision income declined by 2.1% in H1:21 due to lower other income but grew by 12.5% in 2Q2021.

§  Loan loss provisions reached €224m in H1:21 and corresponded to 120 basis points of the average net loans. Eurobank guided for 110bps for 2021 implying CoR below 100bps for H2:21.

§  In terms of asset quality, the NPE ratio fell to 14.0% or 7.3% pro-forma for “Mexico” securitization in H1:21. The stock of NPEs decreased by €110m in Q2:21 to €5.7bn. The NPE formation was negative by €43m in Q2:21. Provisions over NPEs increased by 140 basis points q-o-q to 63.3% at the end of June 2021. The “Mexico” securitization is progressing according to the timeline with a binding offer received by DoValue in August.

  • The estimated impact of the transaction on phased-in total CAD is well below initial expectations (of 50bps) at 10bps. Closing and de-consolidation of NPEs will take place in Q4:21. The H1:21 performance combined with the “Mexico” securitization confirm the target for a single-digit NPE ratio at the end of the current year in the tune of 8% vs 9% previous guidance while in 2022 the bank said the estimated level of NPE’s will reach 5% vs. 6% previous estimate.

§  CET1 and total CAD reached 13.2% and 15.6% at the end of 1H2021 against total SREP capital requirements of 6.2% and 11.0% respectively. The fully-loaded Basel III CET1 increased by 20 basis points q-o-q to 12.1% in H1:21. RWAs amounted to €41.2bn in H1:21.

§  Eurobank said that it plans to start explanatory talks in early 2022 with the supervisor about dividend distributions. With regards to international operations Eurobank targets to 30% revenue contribution from abroad subsidiaries.

§  Overall a good set and a positive outlook which is expected to support current valuation. Resuming dividend is also a key element for next year’s targets which will signify the return to normalization for the bank. Eurobank trades 0.57x its H1:21 TBV

The following table summarise results vs. our estimates:

Eurobank

Act.

Act.

Est.

Overview

Est.

(In Million Euro)

2Q20

1Q21

2Q21

QoQ

YoY

2Q21

vs Est.

NII

349.4

334.7

335.1

0.1%

-4.1%

330

1.5%

Fee income

87.8

98.7

110.3

11.8%

25.6%

100

10.3%

Trading

52

15

29

87.9%

-44.8%

15

91.2%

Other Income

11

-2

4

-1

Total income

500.6

446.5

477.5

7.0%

-4.6%

444

7.6%

Operating costs

-213.4

-215

-218

-1.0%

-2.0%

-217

-0.3%

Pre-provision-profits

287.2

231.0

259.9

12.5%

-9.5%

227

14.5%

Provisions

-145.1

-131

-93

29.3%

36.0%

-120

22.6%

Other results

-1,337

-1

-5

-409.1%

99.7%

-1

PBT

-1,195.1

98.8

162.5

64.5%

113.6%

106

53.1%

Corporate taxes

28

29

42

47.7%

52.7%

31

37.5%

Net profit

-1,223

70.1

120.2

71.4%

109.8%

75

59.5%

Discontinued operations

0

0

0

1

Net profit

-1,222.8

70.1

120.2

71.4%

109.8%

76

57.5%

Minorities

0

0

0

1

Attributable net profit

-1,222.8

70.1

120.2

75