JP Morgan: New prices – targets for Greek bank stocks

Recommendation of “overweight” for the shares of Eurobank shares (which is also the top choice), National and Alpha Bank with target prices of 1.6 euros (from 1.30 euros), 4.5 euros (from 4 euros) and 1.50 euros (from 1.60 euros) respectively and “neutral position” for the share of Piraeus with a target price of 1.8 euros (from 2 euros) issued by JP Morgan, considering that after years of agony, normalcy for the industry is now possible.

Greek banks have largely “cleaned up” their balance sheets and the focus has now shifted to sustainable growth and improving return on equity.

Estimates

According to the American bank, the average annual growth rate of loans to systemic banks will reach 15% by 2024 (from 8% in 2019), as the Greek economy leaves behind the “lost decade” as it enters a multi-year period of higher growth. At the same time, net profits are expected to increase by 10% per year with ROTE moving to 9% on average by 2024.

With the ECB raising interest rates to 1.75%, with the first increase expected next July, net interest income in the sector is expected to improve by 6% and earnings per share by 11%.

The return to normalcy also leads to a return to dividend distribution, with Eurobank and National Bank aiming to return at least 20% of profits by 2022.

The risk

The risk has to do with geopolitical developments as any deterioration in the macroeconomic outlook affects the industry, but also by any slower pace of reforms and implementation of Recovery Fund projects.

Although the exposure of the Greek economy to the war zone is negligible, the main uncertainties revolve around secondary effects and inflationary pressures through the increased energy costs that could hit the economy leading to an equal growth rate of loans in the likelihood of create new red loans, but also to increase risk costs.