BMPS IM: BUY
Banca Monte dei Paschi di Siena released the strong numbers on August 6th. BMPS net income was EUR 121M, vs EUR 28.7M, beating the estimates by 321%.
Even bigger news for us, is the increase in capital with Basel 3 CET1 up 50bps QoQ to 10.7%. Favourable movement in the bond market increased the capital by another 40-50bps to 11.1-11.2%.
Tangible equity was up EUR 2.9bn QoQ, mainly due to the increase in capital of EUR 3bn, to EUR 8.9bn vs. EUR 6.1 bn at Q1 15.
Additional confidence showing that BMPS is back on its feet, comes from the EUR 3.455bn repayment of state aid, including interest – out of total EUR 5bn.
For us, stock is cheap based on the P/B multiple. BMPS has been trading at 0.6x, compared to UCG trading at 0.7x, ISP at 1.2x,PMI 0.89x, MB 0.86x . Italian banks have been trading at the average of 1.1x P/B.
YTD performances: PMI +33.89% and BMPS: -7.5% as BMPS starts its journey gives us more comfort in moving into BMPS and selling our position in PMI this morning (+47.6%).
Most analysts have neutral rating, we feel that the stock will see +ve analyst upgrades going forward and are looking for 2.80 PT.
Finally . Italy adopted a law forcing the 10 biggest POP banks to merge. POP banks are looking to merge with their peers, which would carry significantly lower execution risk. Among the top candidates for BMPS is Unione di Banche Italiane (UBI IM).
However, Banca Popolare di Vicenza and Veneto Banca have hired advisers to explore the options for possible merger.
With fresh capital, strong 2Q numbers, consolidation coming and with P/B trading below 1, we see the stock as undervalued, BMPS is back on its feet and the journey begins.
We initiate a buy. Buying half the position this morning and looking to add more. BUY!
