On Thursday, JPMorgan adjusted its stance on Banco BPM SpA (BAMI:IM) (OTC: BNCZF), upgrading the bank's stock from Underweight to Neutral. The financial institution's price target was also increased to EUR6.40, up from the previous EUR6.00. The revision reflects a valuation support driven by the bank's current trading metrics and potential merger and acquisition (M&A) activities.
Banco BPM is currently trading at a price-to-earnings (PE) ratio of 6.8 times and 0.8 times its net asset value (NAV), with a return on net asset value (RoNAV) of 11%. The bank has been identified as a potential M&A target, with notable interest from UniCredit, which has previously expressed an inclination toward domestic market consolidation.
While a potential merger between UniCredit and Commerzbank (ETR:CBKG) (CBK) could divert UniCredit's M&A focus away from Italy, Banco BPM remains an attractive acquisition candidate for Credit Agricole (OTC:CRARY). The latter already holds a 9% stake in Banco BPM and has a history of proactive acquisitions in the Italian banking sector, including the purchase of three small Italian banks in 2017 and Creval in 2021.
The analyst also suggests that political dynamics could influence M&A activity, noting that if the German government supports an acquisition of Commerzbank by an Italian entity, it could become difficult for the Italian government to oppose a French bank's acquisition of Banco BPM or MPS. The preference is believed to be stronger for Banco BPM over MPS, despite valuation differences.
Additionally, Banco BPM could potentially exceed expectations regarding capital distribution, with a possible payout higher than the anticipated 65%. JPMorgan estimates a payout of over 80%, and with a total yield of approximately 13% per annum, this supports the bank's valuation.
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