On Tuesday, BofA Securities adjusted its stance on KBC Group (KBC:BB) (OTC: OTC:KBCSY) stock, shifting from a "Buy" to a "Neutral" rating, while setting a price target of EUR 82.00.
The firm recognized KBC Group's strong fundamentals, highlighting its robust and sustainable return on tangible equity (ROTE) in Europe, which stands at 16-17%.
The bank's solid non-interest income, particularly from insurance and asset management fees, which comprise about 50% of revenues and have grown over 6% per annum, was also noted.
Despite these strengths, BofA Securities posits that the merits of KBC Group are already reflected in the current valuation, which includes a price-to-earnings (P/E) ratio of 8x and a price-to-tangible book value (P/TBV) of 1.3x, based on the expected 16.5% ROTE and a 10% total yield in 2025. The firm believes that the historical quality sector premium that KBC Group has enjoyed may no longer be justified.
The previous optimism surrounding potential upsides, such as surpassing the €5.5 billion net interest income guidance for 2024, accelerated growth in 2025-26, and a higher capital return from a lower Common Equity Tier 1 (CET1) ratio threshold, appears to have diminished.
BofA Securities also noted that it stands 10% above consensus earnings per share (EPS) estimates for 2024-26, attributing this to a lower cost of risk.
The bank's share buyback (SBB) program is nearing its completion, and the €0.70 special dividend has already been distributed to shareholders. In light of these factors, BofA Securities has maintained its EPS forecasts for KBC Group but has downgraded the rating to "Neutral."
Additionally, the price objective for the American Depositary Receipts (ADRs) has been slightly adjusted to $44.20 from $43.80 due to foreign exchange considerations.
InvestingPro Insights
The recent analysis by BofA Securities on KBC Group (KBC:BB) (OTC: KBCSY) provides a comprehensive view of the company's financial health and market potential. To further enrich this perspective, current InvestingPro data and insights offer additional dimensions to consider. KBC Group's market capitalization stands at a robust $29.69 billion, with a favorable price-to-earnings (P/E) ratio of 9.51, indicating that the stock might be reasonably valued relative to its earnings. The adjusted P/E ratio for the last twelve months as of Q1 2024 is even more attractive at 8.76. Additionally, the company has demonstrated a solid revenue growth of 5.06% in the same period, underscoring its financial progress.
InvestingPro Tips highlight that analysts have revised their earnings upwards for the upcoming period, reinforcing the positive outlook on KBC Group's profitability this year. The company has been profitable over the last twelve months and has experienced a significant price uptick over the last six months, with a total return of 32.54%. While it suffers from weak gross profit margins, the overall financial trajectory appears promising. For readers seeking deeper analysis, there are more InvestingPro Tips available, offering nuanced investment guidance. By using the coupon code PRONEWS24, investors can receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription to access these insights.
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