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Société Générale upgraded to “buy” on strong cost control, capital upside
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Published Aug 05, 2025 13:06
© Reuters.
Investing.com -- Société Générale has been upgraded to “buy” from “neutral” by UBS following a stronger-than-expected second quarter and improved guidance on cost efficiency and capital distribution, in a note dated Tuesday.
The upgrade reflects increased confidence in the bank’s earnings trajectory, with UBS raising its price target to €62 from €51, citing stronger earnings and a higher FY26E P/E of 9.2x from 8.1x.
In the second quarter of 2025, the bank reported pre-tax profit of €2.18 billion, 16% above consensus, driven by a 10% pre-provision profit beat, attributed to 2% higher revenues and 2% lower expenses.
Loan losses were also 6% better than expected. Société Générale announced a €1 billion share buyback and a €0.61 interim dividend per share, equal to 18% of H1 2025 EPS. The CET1 ratio rose to 13.5%, up 10 basis points from the previous quarter.
As a result, Société Générale raised its full-year 2025 guidance, lowering its cost-to-income ratio target to below 65% from the previous 66% and increasing its return on tangible equity target to 9% from 8%.
Revenue growth guidance of more than 3% and cost reductions of at least 1%, both excluding disposals, were maintained.
UBS expects ROTE of 10.8% by FY26E, helped by stronger French Retail performance and declining acquisition costs at BoursoBank.
EPS forecasts were increased by 3% for full-year 2025 to €5.80 and by 4% for 2026 to €6.88, driven by lower expenses and higher share buybacks.
SocGen is projected to deliver EPS growth of 18% annually between 2025 and 2028, the highest in UBS's European bank coverage.
By FY27, the stock is expected to trade at 6.5x earnings, with a 14% distributed yield, compared to the sector average of 9-10%.
Divisional performance in 2Q25 showed French Retail & Insurance, International Retail & Mobility, and Global Banking & Investor Services contributing 36%, 62%, and 20%, respectively, to the pre-provision profit beat.
French Retail net interest income declined 2% quarter-on-quarter but grew 2.4% year-on-year, excluding asset sales. The cost of risk was 25 basis points in the quarter.
UBS notes that achieving a group cost/income ratio of 60% by FY26E could add 4-6% to consensus EPS forecasts.
The bank’s French Retail segment alone is expected to contribute 60% of the group’s like-for-like pre-provision profit growth from 2024 to 2027.
Despite still ranking in the lower quartile for sector ROTE, Société Générale is seen benefiting from improving profitability, stable capital levels, and continued cost efficiency.
UBS expects a 15% upside from the current share price and flagged the bank’s increasing distributed yield as a key differentiator.
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