Day: February 10, 2024

Introduction

Because it has been some time since I mentioned KBC Group (OTCPK:KBCSF) (OTCPK:KBCSY), the current publication of the full-year outcomes for 2023 is an efficient second to inspect the efficiency of the Belgian financial institution/insurance coverage firm.

KBC Group has its major itemizing in Belgium the place the corporate is buying and selling with KBC as its ticker image. The Brussels itemizing has a median quantity of 625,000 shares per day (for a financial worth of roughly 36M EUR), making it essentially the most liquid itemizing and I might strongly advocate to make use of the Euronext Brussels itemizing to commerce within the firm’s inventory. As KBC Group studies its monetary ends in Euro and has its major itemizing in the identical foreign money, I’ll use the EUR as base foreign money all through this text.

The financial institution’s web site accommodates a ‘obtain solely’ hyperlinks, however you could find all of the related info I’ll be referring to right here.

Regardless of the turmoil, KBC posted a good set of ends in This autumn

The monetary sector hasn’t had a simple 2023 however luckily most European banks weren’t hit by the fallout attributable to the problems within the US banking sector. I additionally just like the mannequin of providing banking providers and insurance coverage providers beneath one roof as cross-selling of merchandise could be fairly worthwhile.

However after all, the principle focus has been on the evolution of the online curiosity revenue. And KBC Group has really executed a fairly good job in defending its internet curiosity margin. Whereas the stress elevated in the direction of the top of the yr, the FY 2023 outcomes point out a pleasant 6% enhance within the internet curiosity revenue, which jumped to five.47B EUR.

Wanting on the different parts that make up the 2023 outcomes, we see the full insurance coverage income elevated to 2.68B EUR whereas the bills associated to the insurance coverage actions have been simply 2.12B EUR leading to a constructive contribution of roughly 560M EUR. The revenue assertion above additionally clearly reveals the financial institution has its mortgage loss provisions beneath management. Whereas it recorded a 215M EUR impairment cost, in extra of half that cost was associated to the impairment of goodwill on the steadiness sheet. The ‘different impairment’ costs have been primarily associated to intangible mounted belongings.

The sturdy credit score threat atmosphere was boosted by a 155M EUR launch of beforehand recorded provisions for geopolitical and rising dangers and that launch absolutely compensated for the 139M EUR recorded mortgage loss provisions throughout FY 2023 and that is why the revenue assertion above reveals a provision launch of 16M EUR on monetary belongings. Whereas we should not financial institution on this taking place once more sooner or later (the mortgage loss provisions will normalize), it didn’t have a serious impression on the financial institution’s reported internet revenue as the opposite impairment costs have been increased than typical which implies the full impairment cost was simply 67M EUR decrease than within the earlier yr.

The web revenue generated throughout 2023 was 3.4B EUR which works out to an EPS of 8.04 EUR per share. KBC Group is proposing to pay a dividend of 4.15 EUR per share (topic to the usual dividend tax in Belgium of 30%).

Wanting ahead to the 2024 efficiency

The financial institution has additionally supplied an preliminary steering for 2024. It expects a internet curiosity revenue of 5.3-5.5B EUR and the midpoint of this steering represents a small 1.5% lower in comparison with the FY 2023 internet curiosity revenue. Nonetheless, the anticipated insurance coverage income will probably offset the impression of the decrease internet curiosity revenue.

The mortgage loss provisions ought to stay very low: as you’ll be able to see above, KBC Group is guiding for a credit score price ratio ‘effectively beneath’ the through-the-cycle price ratio of 25-30 bp. With a complete quantity of 306B EUR in monetary belongings on the steadiness sheet, assuming a 15 bp credit score price ratio would lead to complete impairment costs of 450M EUR. I believe 15 bp is fairly conservative contemplating the financial institution’s current credit score price ratios for the interval 2020-2023 have been respectively 0.60%, -0.18% (a internet launch), 0.08% and 0.00% in 2023. Odds are KBC can preserve the credit score price ratio beneath 10 bp through which case there ought to be no noticeable impression on the financial institution’s earnings assuming no different goodwill or intangible asset impairments are essential.

This means we will count on the financial institution’s earnings to stay comparatively steady in 2024. Nonetheless, if I am making use of the upper credit score price ratio, I anticipate a small earnings lower in the direction of 7.75-7.85 EUR per share. A decrease credit score price ratio would clearly increase the earnings outcome.

Funding thesis

I at present don’t have any direct place in KBC Group however I’ve a fairly substantial lengthy place in a mono-holding whose solely asset is a stake in KBC Group, so I not directly have publicity. Buying and selling at simply over 60 EUR per share, KBC Group just isn’t costly in any respect because the inventory is buying and selling at roughly 7.5 instances the 2023 earnings and at lower than Eight instances my anticipated 2024 internet revenue. The dividend yield of just about 7% is interesting as effectively and given the low payout ratio of round 50%, that dividend is sustainable, even when the EPS would present a slight lower in 2024.

Editor’s Observe: This text discusses a number of securities that don’t commerce on a serious U.S. alternate. Please concentrate on the dangers related to these shares.