On Thursday, UBS revised its stance on Banco BPM SpA (BAMI:IM) (OTC: BNCZF) stock, shifting its rating from Neutral to Buy and adjusting the price target to €7.90, up from the previous €6.80. The upgrade reflects a more optimistic outlook on the bank's cost management and its robust capital position.
According to InvestingPro data, the stock is trading near its 52-week high, with an impressive 27.5% return over the past year. The bank maintains a "GREAT" overall Financial Health Score of 3.18, supporting UBS's positive stance.
The analyst at UBS provided insight into the factors influencing the upgrade, noting the inclusion of dividends from the recently acquired stake in BMPS, which is not covered by UBS but is based on VA consensus estimates.
Additionally, the forecast for operating costs from 2025 to 2028 has been reduced by approximately 2%, and a slightly improved cost of risk (CoR) has been incorporated into the estimates.
InvestingPro data reveals the bank has consistently raised its dividend for four consecutive years, though current analysis suggests the stock may be trading above its Fair Value.
Despite the upgrade, UBS maintains a cautious stance on Banco BPM's earnings per share (EPS) for 2026, estimating it to be around 5% below the bank's own net income target of €1.5 billion for that year. The bank's excess capital, which is estimated to be around 200 basis points or roughly 15% of its market capitalization, offers flexibility for increased capital distribution or potential inorganic growth opportunities.
The analyst highlighted the potential for further positive developments, such as the successful completion of the Anima tender offer, which could enhance the stability of Banco BPM's revenue streams and possibly lead to a valuation upside of over 30%. The tender offer by UCG for Banco BPM underscores the attractiveness of the stock.
According to UCG's offer terms, which include the expected contribution from the Anima acquisition and anticipated revenue and cost synergies, Banco BPM's valuation could be appealing at approximately 4 times its 2027 estimated EPS, compared to the sector average of around 7 times.
In other recent news, Deutsche Bank (ETR:DBKGn) has upgraded Banco BPM shares from Hold to Buy, lifting the price target to €7.40, up from €6.50. This revision, based on the expectation of a more resilient net interest income in 2025, could result in earnings surpassing consensus forecasts.
Several factors influenced this upgrade, including potential upside risks related to Banco BPM's 14% CET1 capital ratio guidance for 2026 and an expected increase in speculative earnings per share for the 2024-2027 period by approximately 4%.
Banco BPM's stock, excluding the value of listed/liquid stakes, excess capital, and targeted distributions, is trading at a 2026E price-to-earnings ratio of 2x, according to Deutsche Bank. This indicates that the market might be undervaluing a profitable and well-capitalized banking business. Deutsche Bank also emphasized Banco BPM's proactive management of interest rate sensitivity as a significant advantage, helping to alleviate the impact of lower interest rates.
Furthermore, this strategy supports the upgraded EPS guidance for 2024 and strengthens confidence in Banco BPM's ability to achieve its 2026 net income target, even if the EURIBOR rate falls to 2%, substantially below the 3.1% assumed in the bank's business plan. These recent developments suggest a more optimistic outlook for Banco BPM's financial performance in the coming years.
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