Societe Generale: Low Profitability Justifies Discount Compared With Peers

We increase our fair value estimate slightly for Societe Generale by 3% to EUR 29.30 per share, from EUR 28.50 per share. Our medium-term revenue estimates are in line with guidance and we expect a recovery in 2024 revenue as we don't expect further losses from Societe Generale’s interest-rate hedging program. Societe Generale’s 2026 cost/income target of below 60% looks aggressive, especially given the higher cost base that we expect from agreed salary increases. Societe Generale looks cheap compared with the sector, although its profitability is also materially below that of its rivals. Societe Generale’s lower profitability constrains the potential for higher dividend payouts and share buybacks; which is in sharp contrast to many of its peers who offer high shareholder distribution yields.