Citi sees European Banks' valuation cheap but Q1 miss likely, adds Barclays to top picks

Inghams

18/03/2024 12:52

** Citigroup remains "market-weight" on European banks,
whose overall Q4 earnings beat narrowed to its smallest in four
years, saying a softening trend implies a real risk of an
earnings miss in Q1
    ** The broker attributes the 10% year-to-date surge by STOXX
Europe 600 banks index  .SX7P  to re-rating, adding that overall
valuations remain cheap
    ** Citi notes an end to consensus earnings upgrades seen
since 2020, adding, however, that the downgrades have been
smaller compared to other sectors and that banks continue to
deliver on capital return
    ** Net interest income (NII) remains the key driver of
earnings, the brokerage says, noting that the majority of banks
increased net interest margin/NII guidance with their Q4 results
    ** Citi sees yield of above 15% in 2024 for ING, Unicredit,
HSBC, and Caixabank, compared to the sector's all-in yield of
above 10%
    ** The broker adds London-listed Barclays  BARC.L , which it
says screens particularly well on valuation, to its top picks
alongside BBVA  BBVA.MC  and HSBC  HSBA.L , replacing SocGen
    ** Citi forecasts Barclays' 2024 adjusted pretax profit at
4% above consensus and says that "if all of the divisional
targets are achieved this would imply >30% upside to consensus
earnings for 2026"
    ** Its least preferred stocks are Sabadell  SABE.MC , SEB
 SEBa.ST , and Handelsbanken  SHAb.ST 
    

 (Reporting by Elsa Ohlen)
 ((elsa.ohlen@thomsonreuters.com;))