Analyst Note| Johann Scholtz, CFA |
Narrow-moat ING reported net attributable profit of EUR 1 billion for first-quarter 2021, a more than 50% year-on-year increase over the EUR 670 million it reported for first-quarter 2020. The increase was largely the result of lower loan-loss provisions. Reported profits also came in 30% higher than the first-quarter earnings expectations of the consensus of analysts collected by Visible Alpha. The earnings beat was partially the result of ING meeting the lending thresholds required to qualify for the European Central Bank's targeted longer-term refinancing operations. As we indicated in our previous note this represented upside risk to our earnings estimate for 2021. ING however, also reported higher-than-expected fees and loan-loss provisions were much lower than expected. ING once again confirmed its intention to return capital and move to a 12.5% common equity Tier 1 ratio over time--compared with its current common equity Tier 1 ratio of 15.5%. Using a 12.5% capital base implies a return on equity of 11% for the quarter; we do not believe ING’s underlying profitability and its potential to return excess capital to shareholders are reflected in the 25% discount it currently trades at relative to its tangible book value. We maintain our narrow moat rating and our EUR 14/share fair value estimate. Our fair value estimate is equal to ING’s tangible book value.