ABN AMRO Bank upgraded to "outperform" by RBC Capital Markets

Investing.com -- Analysts at RBC Capital Markets have upgraded ABN AMRO (AS:ABNd) Bank N.V. to an "outperform" rating from a previous "Sector Perform," with a price target of €23, in a note dated Friday. 

This upgrade is based on the analysts’ view that the incoming management has several opportunities to improve profitability and reduce share price volatility, which could lead to a re-rating of the stock.

RBC Capital Markets highlights that ABN AMRO’s shares are currently trading at a low valuation compared to its sector, and market expectations appear to be factoring in minimal progress. 

The appointment of the new CEO, Marguerite Bérard, is seen as a potential catalyst for change, given her relevant experience. 

Bérard’s previous role included leading BNP Paribas (OTC:BNPQY) French Commercial and Personal Banking, an operation comparable in size to ABN AMRO.  

The analysts identified several key areas where the new management could focus its efforts. 

One major area is improving the return on equity (ROE) in corporate banking, which, despite representing a substantial portion of risk-weighted assets (RWA), has a lower return compared to other divisions. 

Analysts believe that addressing the high risk density and increasing cross-selling could enhance the corporate bank’s ROE.  

Cost management is another lever for potential improvement. RBC Capital Markets points out the increase in full-time employees (FTEs) and high consultancy costs, suggesting that there is room for more decisive action in this area.  

RBC Capital Markets also addresses the issue of share price volatility. The analysts attribute some of this volatility to changes in net interest income (NII) expectations and believe that higher profitability and clearer visibility on the company’s return on tangible equity (ROTE) trajectory should contribute to reducing earnings volatility.  

The analysts’ positive outlook is contingent on ABN AMRO taking steps to improve its return to above 10% in the longer term and reduce earnings volatility. Their estimates for 2027 are higher than consensus, and they project a significant return of capital to shareholders by 2028.  

However, RBC Capital Markets also acknowledges potential risks, including challenges in strategy execution, tariffs, the Volksbank acquisition, and government holdings.  

The brokerage indicates that ABN AMRO’s shares have underperformed European banks, with a discount in price-to-book ratio compared to both the sector and its historical average. 

This underperformance, according to RBC Capital Markets, is a key factor prompting the upgrade, as they see potential for a reversal through the outlined improvements.  

RBC Capital Markets also provided a detailed examination of ABN AMRO’s corporate banking division, identifying it as a primary area for potential enhancement. 

The division’s high risk density and reliance on net interest income are highlighted as factors contributing to its lower profitability compared to peers. The report suggests that addressing these inefficiencies could significantly boost the group’s overall returns.