November 17, 2009

Natixis (Hold, TP=€4.20) - Rating downgrade - The party is over. Time to get down to business (3p)

Please find below our latest publication:

Natixis (Hold, TP=€4.20) - Rating downgrade - The party is over. Time to get down to business (3p)
Natixis reported Q3 earnings at €268m below our estimate of €386m. Nevertheless, these results included several exceptional items (GAPC +€66m, CDS -€319m, capital gain +€463m, revaluation of the spread on own debt -€143m and +€309m taken from collective provisions). Restated for exceptionals, earnings broke even, in line with our estimates. We were disappointed by the 5% increase in costs, as we had been expecting a decline like during the past 1.5 years, particularly as the deterioration was mainly attributable to Corporate & Investment Banking (+20% after -16% in Q2 and -19% in Q1). Conversely, risk weighted assets are still well under control, down -3.5% quarter on quarter, notably thanks to Corporate & Investment Banking (-8%).
The company reported Q3 results based on its new strategic orientation (CIB, Services and Asset Management) which reduced visibility. The group was slightly impacted by GAPC in Q3, only because of provision write-backs on its monolines (€500m). Q3 performances were in line with our projections in most businesses except for Asset Management, which remains disappointing compared with peers (outflows of €1bn vs inflows of €10.9bn at CASA). The cost of risk restated for part of the Q2 sector provision allocation was up sharply (196bp for the group) mainly on LBOs and real estate financing. Thus, we see no reason to raise our earnings estimates at this stage.
Target price & rating
The orientation of the strategic plan is positive but lacks visibility and the numerous exceptionals may cloud the visibility of the accounts over the medium term. Following an excellent performance (68% over three months), the low valuation (1x 2010e tangible book value) reflects this poor visibility. In our opinion, the market today discounts factors that are much too uncertain, such as the use of €3.9bn in deferred tax over an unknown period of time. We downgrade our rating to Hold vs Buy. Our SOP-based target price is unchanged at €4.2.
Next events & catalysts
The group will not provide details on the progress of its plan until the full year results publication at end-February

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