Intesa Sanpaolo Resumes Coverage With a Fair Value Estimate of EUR 3.00 per Share

We estimate that Intesa Sanpaolo ISP has a fair value of EUR 3.00 per share, equal to 1.3 times Intesa’s 2022 tangible book value and 8 times the EPS we estimate Intesa will record for 2023. We estimate that Intesa can generate a midcycle return on tangible equity of around 13%.

We estimate that Intesa will post earnings of EUR 7.1 billion for 2023, slightly above its guidance and 64% higher than what it achieved in 2022. The main drivers are significantly higher net interest margins, a stable cost base, and lower-than-average loan loss provisions. We estimate that the windfall tax on Italian banks will lead to a once-off reduction of around EUR 700 million for Intesa’s 2023 earnings. We forecast broadly stable earnings growth for 2024 and 2025 as the tailwind from higher interest rates dissipates, and loan loss provisions normalize upward.

We do not believe that Intesa fully satisfies our criteria to award an economic moat. Qualitatively, Intesa has moaty attributes. It has an attractive funding mix dominated by cheap, sticky retail deposits, which gives it a cost advantage. Customers typically have multiple products with the bank, which creates switching costs. However, for a firm to qualify for a narrow economic moat, we need to be confident it will more likely than not generate excess normalized returns 10 years from now, and there must not be any substantial threat of major value destruction. We are not convinced that Intesa clears these thresholds. We estimate that Intesa will generate a midcycle return on tangible equity of 13%, which is barely above our 12% cost of equity assumption, leaving little margin for error for Intesa to generate positive returns. We also believe that there is an outside risk that the Italian government may play a more active role in the pricing of deposits, which will pose a material risk to our profitability estimate for Intesa, which we view as a substantial threat of major value destruction.