Bawag Group AG (BWAGF) Q3 2024 Earnings Call Highlights: Strong Profitability Amidst Strategic ...

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Tue, Oct 29, 2024, 1:02 AM 5 min read

Net Profit: EUR178 million for Q3 2024.
Earnings Per Share (EPS): EUR2.25.
Return on Tangible Common Equity: 24% for Q3 2024.
Tangible Book Value Per Share: EUR38.48, up 16% year-over-year and 3% quarter-over-quarter.
Pre-Provision Profits: EUR265 million.
Cost Income Ratio: 32%.
Total Risk Costs: EUR25 million, with a risk cost ratio of 25 basis points.
Non-Performing Loan (NPL) Ratio: 1%.
Average Customer Loans: Down 2% quarter-over-quarter.
Average Customer Deposits: Up 1% quarter-over-quarter.
CET1 Ratio: 17.2%, up 70 basis points from the prior quarter.
Cash Position: EUR15.6 billion, representing 28% of the balance sheet.
Full Year Profit Before Tax Target: Over EUR950 million.
Retail and SME Business Net Profit: EUR131 million, down 4% year-over-year.
Corporate Real Estate and Public Sector Business Net Profit: EUR40 million, down 6% year-over-year.
Net Interest Margin: 304 basis points.
Operating Expenses: Flat in the quarter.
Deposit Beta: Increased from 32% to 35%.

Warning! GuruFocus has detected 3 Warning Sign with BWAGF.

Release Date: October 28, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Bawag Group AG (BWAGF) reported a strong net profit of EUR178 million for Q3 2024, with an EPS of EUR2.25 and a return on tangible common equity of 24%.
The company received ECB approval for the acquisition of Knab in the Netherlands, which is expected to positively impact future earnings.
Bawag Group AG (BWAGF) maintained a low non-performing loan (NPL) ratio of 1%, indicating solid credit performance across its businesses.
The CET1 ratio increased to 17.2%, up 70 basis points from the previous quarter, reflecting strong capital generation.
The company has a robust balance sheet with EUR15.6 billion in cash, representing 28% of the balance sheet, and a liquidity coverage ratio (LCR) of 260%.

Negative Points

Average customer loans decreased by 2% quarter over quarter, indicating a decline in lending activity.
The Retail and SME business saw a 4% decline in net profit compared to the previous year, with operating expenses up by 12%.
The corporate real estate and public sector business experienced a 6% drop in net profit versus the prior year.
The company utilized EUR10 million of its management overlay to address an NPL in its US office exposure, highlighting ongoing challenges in this asset class.
Bawag Group AG (BWAGF) anticipates some net interest income (NII) compression due to expected rate cuts, which could impact future earnings.

Q & A Highlights

Q: Could you clarify the moving parts of the Knab acquisition upgrade and comment on the cost increase from 3% to 5%? A: Anas Abuzaakouk, CEO: The Knab acquisition factors in two months, with the upgrade largely resulting from this acquisition. The interest rate environment is a significant factor, and more guidance will be provided next year. Enver Sirucic, CFO: The cost increase is mainly due to higher integration costs for Knab and Barclays, with inflation as expected. The run rate is around 4%, slightly higher than initially guided.

Q: Where do you see lending opportunities given the muted momentum recently? A: Anas Abuzaakouk, CEO: We likely hit a trough in Q3, with a robust pipeline in non-retail sectors like corporate real estate and public sector. We see refinancing opportunities and are bullish on these fronts. Retail mortgage originations have been muted, but we expect growth in non-mortgage consumer and SME lending.

Q: Can you provide a bridge from the 17.2% CET1 ratio to over 14% by year-end? A: Enver Sirucic, CFO: The bridge includes regular earnings and dividend accrual, creating 40 to 50 basis points net in Q4. The majority of the RWA increase is tied to the acquisitions, which will be reflected in the year-end CET1 ratio.

Q: What is the likelihood of more provisioning for the US office portfolio in Q4? A: Anas Abuzaakouk, CEO: We have taken EUR30 million in provisions over the past two years, which we believe is sufficient. We feel confident for Q4, and the worst is likely behind us.

Q: Could you provide an update on the NII sensitivity and structural hedge? A: Enver Sirucic, CFO: The first 100 basis points of rate cuts have minimal impact, with some compression expected in the next 100 basis points. The structural hedge is designed to absorb deposit beta and support recovery over the coming years, with NII expected to grow into 2025.

Q: How do you view the European office exposure compared to the US? A: Anas Abuzaakouk, CEO: The issues in Europe are different, primarily related to cap rates rather than work-from-home trends. European office exposure has been stable with no losses, and we feel positive about the underwriting quality.

Q: What is the impact of the recent increase in cash and cash equivalents on NII? A: Enver Sirucic, CFO: The increase in cash had no material impact on NII. It was due to increased deposits and issuance in anticipation of M&A, with cash balances expected to remain stable.

Q: Can you provide details on the potential acquisition of the Mercedes Benz portfolio in Austria? A: Anas Abuzaakouk, CEO: It is a small transaction under EUR100 million, expected to close in late Q4 or early Q1. It is more about acquiring assets rather than a merger.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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