BNP Paribas Earnings: Robust Results but Future Revenue Growth Drivers Less Evident

BNP Paribas reported a pretax profit of EUR 3.8 billion for the third quarter of 2023, 6% ahead of what it disclosed a year earlier but in line with the consensus estimate for the quarter by the analysts polled by the company. With interest rates close to their peak, BNP’s future drivers of revenue growth are unclear. Second-hand car prices are set to normalize, which should pressure revenue in BNP’s leasing businesses. BNP believes that securities trading income is close to normalized levels, but this remains a volatile line item. BNP is shutting down some of its smaller personal finance operations, although the impact of this on the bottom line will be limited. The aggressive launch of sovereign bonds aimed at retail savers in Belgium led to an outflow of deposits in BNP’s Belgian operations. It could lead to margin pressure as Belgian banks must improve pricing on their deposit products. However, BNP has excess liquidity and a limited need to chase deposits with improved pricing.

We maintain our EUR 76 per share fair value estimate for BNP and continue to view BNP as undervalued. We believe that BNP’s current valuation reflects the structural improvement in its profitability. BNP’s share price is currently 10% lower than five years ago, yet we anticipate that BNP will report 62% higher earnings per share for 2023 compared with 2018. We also estimate a 2% higher return on tangible equity for 2023 compared with 2018, despite being better capitalized (current common equity Tier 1 ratio of 13.1% vs. 11.8% in 2018). Supporting this improvement is what we view as a structural change in interest rates. In 2018, European interest rates were negative, with no prospect of a return to positive interest rates.