Equity Analyst, Event-driven, Quiddity Advisors

Janaghan Jeyakumar, CFA

Equity Analyst, Event-driven

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<ul>
<li>The SE600 index is one of the most widely followed benchmark indices in Europe. This index is rebalanced on a quarterly basis.</li>
<li>In this insight, we take a look at the potential index changes that could take place between now and the end of the December 2023 rebalance.</li>
<li>There are two more weeks for the base date. As things stand, there could be six ADDs/DELs during the December 2023 review and probably two more intra-review changes after that.</li>
</ul>


The SE600 index is one of the most widely followed benchmark indices in Europe. This index is rebalanced on a quarterly basis.
In this insight, we take a look at the potential index changes that could take place between now and the end of the December 2023 rebalance.
There are two more weeks for the base date. As things stand, there could be six ADDs/DELs during the December 2023 review and probably two more intra-review changes after that.


Quiddity Leaderboard SE600 Dec 23: 6 ADDs/DELs and Two Intra-Review Changes Possible

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Banco Comercial Portugues SA / Equity Bottom-Up

<h2>BCP: Value-Quality trends are benign</h2>Banco Comercial Português, S.A. is the largest private bank in Portugal, having acquired the previously largest entity, ("Atlântico"), back in 1995. BCP is also particularly active in Africa, in Mozambique and in Angola, and in Poland via Bank Millenium. The bank has an operation in Macau. With 2.4mm clients, Portugal accounts for 71% of total Group Assets and 69% of Loans, respectively. Market share of Loans and Deposits in Portugal stands at 17.5% and 18.1%, respectively. Overall, the Group has 5.7mm customers, of which 1.2mm relate to Africa. Market share of Loans and Deposits in Mozambique stands at 16.8% and 24.2%, respectively. Millennium bim in Mozambique is a highly capitalized deposit-rich franchise with a strong brand and a deep electronic banking penetration. Banco Millennium Angola, SA and Banco Privado Atlântico, SA merged in 2016. With its multichannel infrastructure covering 2.4mm clients, Bank Millenium in Poland commands a 6.1% share of the credit market and 5.1% of Deposits in Poland. Over the years, prodded by the government and ECB, the Group has exited varied non-core operations such as in Romania and in Greece and has disposed of insurance units in order to reinforce its capital base and fortify its Luso proposition. As part of the deep reorganization involving employee and branch rationalistion, Banco de Investimento Imobiliário S.A and Eurobank SA were integrated into BCP. Restructuring has resulted in a 40% drop in OPEX within Portugal since 2011 and a 70% decline in non-performing exposures since 2013 (from €13.7mm to €3.3mm euros in 2020). Group credit is balanced between low risk mortgages with an average LTV of 60% and corporates. The shareholders structure is centred on investors from Portugal (33.8% of total), from China (29.9%) and from Africa (19.6%).<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/208/889/original/image_76396793621621928173285.jpg?1621928173" class="editor-image img-responsive" data-smartkarma-image-id="208889"></figure>The PH Score™ of BCP is favorable given forceful amelioration in Profitability, in NIM/Spread, in Efficiency, in Liquidity, and in Asset Quality. There was though some softer Provisioning, and erosion in some Capital Ratios. In fact relative to closely matched counterparts by size*, BCP commands, a fairly robust NIM, a better than median CIR, better Liquidity, and superior Revenue diversification as measured by Non-Interest income/Operating Revenues.<div class="content-highlight">A FV of 4%, a PBV of 0.43x, and an Earnings Yield of 12.47% are not unattractive. The bank commands strong fundamental momentum -and a technical tailwind- and is a preferred financial entity in Europe.  Shares should be considered on any weakness given the high PH Score™.</div>*Alpha Services &amp; Holdings, Bper Banca, National Bank of Greece, Mediobanca, Jyske Bank, Banco Espiritu Santo, Turkiye Is Bankasi, Liberbank, Bankinter, PKO.

BCP: Value-Quality trends are benignBanco Comercial Português, S.A. is the largest private bank in Portugal, having acquired the previously largest entity, ("Atlântico"), back in 1995. BCP is also particularly active in Africa, in Mozambique and in Angola, and in Poland via Bank Millenium. The bank has an operation in Macau. With 2.4mm clients, Portugal accounts for 71% of total Group Assets and 69% of Loans, respectively. Market share of Loans and Deposits in Portugal stands at 17.5% and 18.1%, respectively. Overall, the Group has 5.7mm customers, of which 1.2mm relate to Africa. Market share of Loans and Deposits in Mozambique stands at 16.8% and 24.2%, respectively. Millennium bim in Mozambique is a highly capitalized deposit-rich franchise with a strong brand and a deep electronic banking penetration. Banco Millennium Angola, SA and Banco Privado Atlântico, SA merged in 2016. With its multichannel infrastructure covering 2.4mm clients, Bank Millenium in Poland commands a 6.1% share of the credit market and 5.1% of Deposits in Poland. Over the years, prodded by the government and ECB, the Group has exited varied non-core operations such as in Romania and in Greece and has disposed of insurance units in order to reinforce its capital base and fortify its Luso proposition. As part of the deep reorganization involving employee and branch rationalistion, Banco de Investimento Imobiliário S.A and Eurobank SA were integrated into BCP. Restructuring has resulted in a 40% drop in OPEX within Portugal since 2011 and a 70% decline in non-performing exposures since 2013 (from €13.7mm to €3.3mm euros in 2020). Group credit is balanced between low risk mortgages with an average LTV of 60% and corporates. The shareholders structure is centred on investors from Portugal (33.8% of total), from China (29.9%) and from Africa (19.6%).The PH Score™ of BCP is favorable given forceful amelioration in Profitability, in NIM/Spread, in Efficiency, in Liquidity, and in Asset Quality. There was though some softer Provisioning, and erosion in some Capital Ratios. In fact relative to closely matched counterparts by size*, BCP commands, a fairly robust NIM, a better than median CIR, better Liquidity, and superior Revenue diversification as measured by Non-Interest income/Operating Revenues.A FV of 4%, a PBV of 0.43x, and an Earnings Yield of 12.47% are not unattractive. The bank commands strong fundamental momentum -and a technical tailwind- and is a preferred financial entity in Europe.  Shares should be considered on any weakness given the high PH Score™.*Alpha Services &amp; Holdings, Bper Banca, National Bank of Greece, Mediobanca, Jyske Bank, Banco Espiritu Santo, Turkiye Is Bankasi, Liberbank, Bankinter, PKO.

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

<ul>
<li>In our Southern Europe bank screens, we look for attractive valuations, core capital strength and constructive signals on credit quality</li>
<li>In Italy, we are positive on <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a> , which is attractive on valuations, credit quality and capital as well as <a href="https://www.smartkarma.com/entities/bper-banca-s-p-a" target="_blank" data-smartkarma-citation="entities:21165:1" rel="noopener">BPER Banca S.p.A (BPE IM)</a> on valuations and NPL coverage</li>
<li>In Spain, <a href="https://www.smartkarma.com/entities/banco-bilbao-vizcaya-argentari" target="_blank" data-smartkarma-citation="entities:21251:1" rel="noopener">Banco Bilbao Vizcaya Argentari (BBVA SM)</a> screens well on valuation, NPL coverage and the capital ratio will get a boost post US Bancshares disposal; we are also positive on the Caixabank-Bankia merger</li>
<li>
<a href="https://www.smartkarma.com/entities/banco-comercial-portugues-sa" target="_blank" data-smartkarma-citation="entities:21358:1" rel="noopener">Banco Comercial Portugues Sa (BCP PL)</a> is one to watch in Portugal, while we believe that the Greek banks still have a way to go on balance sheet de-risking</li>
<li>Risks to our positive views on the recommended Italian and Spanish banks include a reversal of investor sentiment into a more “risk off” mode, including investors shunning value shares</li>
</ul>


In our Southern Europe bank screens, we look for attractive valuations, core capital strength and constructive signals on credit quality
In Italy, we are positive on UniCredit SpA (UCG IM) , which is attractive on valuations, credit quality and capital as well as BPER Banca S.p.A (BPE IM) on valuations and NPL coverage
In Spain, Banco Bilbao Vizcaya Argentari (BBVA SM) screens well on valuation, NPL coverage and the capital ratio will get a boost post US Bancshares disposal; we are also positive on the Caixabank-Bankia merger

Banco Comercial Portugues Sa (BCP PL) is one to watch in Portugal, while we believe that the Greek banks still have a way to go on balance sheet de-risking
Risks to our positive views on the recommended Italian and Spanish banks include a reversal of investor sentiment into a more “risk off” mode, including investors shunning value shares


Southern Europe Bank Screens; Picks for 2021

European Event-Driven Analyst

Jesus Rodriguez Aguilar

<ul class="">
<li>The new CaixaBank has established the composition of its Board of directors, which will be the largest domestic bank in Spain.</li>
<li> The independent expert (BDO) has endorsed the exchange ratio,
<ul>
<li>
0.6845 new CaixaBank shares for each Bankia share.</li>
</ul>
</li>
<li>The FROB believes that the operation will have a positive effect on the recovery of the aid.</li>
</ul>
I recommend keeping an eye on the spread.
<ul>
<li>It closed on 27 October at 1.66% (gross), not far from the maximum reached on 20 October of 1.73%, and in any case an interesting level for a deal that will certainly close (est. March 2021).
</li>
</ul>
Further catalysts post-merger are (increased) dividend payouts and the exit in the short to medium term of the Kingdom of Spain from the capital of the merged entity.
M&amp;A consolidation seems as a reasonable way to reduce costs and protect profits. These can be among domestic banks or, much to the liking of the ECB, between banks domiciled in different EU countries that share common markets, and would create European champions (see list of banks that appear in many rumours at the end of the note).


The new CaixaBank has established the composition of its Board of directors, which will be the largest domestic bank in Spain.
 The independent expert (BDO) has endorsed the exchange ratio,


0.6845 new CaixaBank shares for each Bankia share.


The FROB believes that the operation will have a positive effect on the recovery of the aid.

I recommend keeping an eye on the spread.

It closed on 27 October at 1.66% (gross), not far from the maximum reached on 20 October of 1.73%, and in any case an interesting level for a deal that will certainly close (est. March 2021).


Further catalysts post-merger are (increased) dividend payouts and the exit in the short to medium term of the Kingdom of Spain from the capital of the merged entity.
M&amp;A consolidation seems as a reasonable way to reduce costs and protect profits. These can be among domestic banks or, much to the liking of the ECB, between banks domiciled in different EU countries that share common markets, and would create European champions (see list of banks that appear in many rumours at the end of the note).

Bankia - CaixaBank: Merger in Progress, Spread Attractive

<ul>
<li>High liquidity in markets and improving investor risk appetite appear to be driving the rotation into equities and especially value stocks, which includes European banks and financials</li>
<li>We also believe that the past years of tightening regulation, especially banks capital, is now going into reverse, with conduct-related fines imposed on the sector having declined sharply</li>
<li>We update our value screens on European banks in this report, adding another screen for dividend cover; among the European banks, we look for value and sustainable dividend yield based on these screens</li>
<li>We believe that <a href="https://www.smartkarma.com/entities/banco-bpm-spa" target="_blank" data-smartkarma-citation="entities:28121:1" rel="noopener">Banco BPM SpA (BAMI IM)</a>, <a href="https://www.smartkarma.com/entities/banca-popolare-dell-emilia-rom" target="_blank" data-smartkarma-citation="entities:21165:1" rel="noopener">Banca Popolare Dell'Emilia Rom (BPE IM)</a> and <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a> stand out among our core coverage; <a href="https://www.smartkarma.com/entities/banco-bilbao-vizcaya-argentari" target="_blank" data-smartkarma-citation="entities:21251:1" rel="noopener">Banco Bilbao Vizcaya Argentari (BBVA SM)</a> and <a href="https://www.smartkarma.com/entities/banco-de-sabadell-sa" target="_blank" data-smartkarma-citation="entities:21295:1" rel="noopener">Banco De Sabadell Sa (SAB SM)</a> in Spain and <a href="https://www.smartkarma.com/entities/banco-comercial-portugues-sa" target="_blank" data-smartkarma-citation="entities:21358:1" rel="noopener">Banco Comercial Portugues Sa (BCP PL)</a> in Portugal screen well</li>
<li>Outside of our core coverage, we highlight <a href="https://www.smartkarma.com/entities/danske-bank-a-s" target="_blank" data-smartkarma-citation="entities:22336:1" rel="noopener">Danske Bank A/S (DANSKE DC)</a> given its value, dividend yield and relatively healthy cover; also <a href="https://www.smartkarma.com/entities/bank-of-ireland" target="_blank" data-smartkarma-citation="entities:21838:1" rel="noopener">Bank of Ireland (BKIR ID)</a> and, despite its lack of dividend yield, <a href="https://www.smartkarma.com/entities/eurobank-ergasias-sa" target="_blank" data-smartkarma-citation="entities:22604:1" rel="noopener">Eurobank Ergasias Sa (EUROB GA)</a> is one to watch in Greece</li>
<li>Risks to our thesis are a protracted"risk-off" period in markets, potentially driven by heightened increased trade deal frictions, low GDP growth and increased geo-political tensions that drive investors away from equities into more traditional safe haven assets</li>
</ul>


High liquidity in markets and improving investor risk appetite appear to be driving the rotation into equities and especially value stocks, which includes European banks and financials
We also believe that the past years of tightening regulation, especially banks capital, is now going into reverse, with conduct-related fines imposed on the sector having declined sharply
We update our value screens on European banks in this report, adding another screen for dividend cover; among the European banks, we look for value and sustainable dividend yield based on these screens
We believe that Banco BPM SpA (BAMI IM), Banca Popolare Dell'Emilia Rom (BPE IM) and UniCredit SpA (UCG IM) stand out among our core coverage; Banco Bilbao Vizcaya Argentari (BBVA SM) and Banco De Sabadell Sa (SAB SM) in Spain and Banco Comercial Portugues Sa (BCP PL) in Portugal screen well
Outside of our core coverage, we highlight Danske Bank A/S (DANSKE DC) given its value, dividend yield and relatively healthy cover; also Bank of Ireland (BKIR ID) and, despite its lack of dividend yield, Eurobank Ergasias Sa (EUROB GA) is one to watch in Greece
Risks to our thesis are a protracted"risk-off" period in markets, potentially driven by heightened increased trade deal frictions, low GDP growth and increased geo-political tensions that drive investors away from equities into more traditional safe haven assets


European Banks: Screening for Value January 2020

Portugal

Banco Comercial Portugues, S.A. (BCP) attracts deposits and offers commercial and investment banking services. The Bank offers consumer loans, factoring, lease financing, mortgages, insurance, securities brokerage, investment funds, and credit cards. BCP operates offices in Europe, the Americas, Africa, and China.

Banco Comercial Portugues SA (BCP PL)

Quiddity Leaderboard SE600 Dec 23: 6 ADDs/DELs and Two Intra-Review Changes Possible

The one-way for the 6 ADDs/DELs expected for December is around US$80mn. On average, there could be around 1.6 days to buy for the 6 ADDs and 1.2...

Janaghan Jeyakumar, CFA

BCP: Value-Quality Trends Are Benign

BCP reports strong fundamental momentum and benign financial trends while shares remain under valued despite recent outperformance.

Paul Hollingworth

Southern Europe Bank Screens; Picks for 2021

As 2021 Southern Europe bank picks, Unicredit, BPER and BBVA, Caixaban-Bankia stand out in terms of valuation, capital strength and credit quality

Victor Galliano

Bankia - CaixaBank: Merger in Progress, Spread Attractive

I recommend keeping an eye on the spread. It closed today (27 October) at a gross 1.66%, an interesting level for a deal that will certainly close...

Jesus Rodriguez Aguilar

European Banks: Screening for Value January 2020

High liquidity in markets and improving investor risk appetite appear to be driving the rotation into equities and especially value stocks, which...

Victor Galliano