This analysis is by Bloomberg Intelligence Senior Analysts Edmond Christou and Lea El-Hage. It appeared first on the Bloomberg Terminal.
Qatari banks’ consensus 2023 earnings growth hovers at 6%, a cut from the estimated 14% in October last year. This validates our Focus Idea that 2023’s earnings consensus was overstated by 6-8 percentage points given post-World Cup challenges, and now the banks trade at 0.95x price to book vs. 1.5x on October last year. Consensus 2024 earnings growth of 8% in 2024 is likely driven by the top line, rather than lower provisions.
EPS consensus may play down revenue power in 2024
Consensus for the top six Qatari banks suggests revenue growth of 2% in 2023, down from 7% expected by consensus in October last year. This cut follows earnings misses and downgrades to profit guidance by local banks and also validates our cautious research note from Oct. 23. Consensus currently expects revenue to expand 1% in 2024 despite loan-growth expectations of 5%. This implies margin pressure in 2024. We don’t fully agree as the lenders’ cost-of-funding pressure from rising interest rates is easing and the Fed may cut in 2H24, which may aid margin if banks optimize funding costs.
Consensus suggests 6% earnings expansion this year and 8% in 2024. As the latter isn’t backed by strong revenue, EPS is likely boosted by lower provisioning and cost control.
Top-line consensus may move higher on negative carry
The top six Qatari banks’ 6% earnings gains last year represented a miss compared with 12% consensus expectations (October), driven by 2H earnings shortfalls. This also trimmed analysts’ 2023 growth consensus to 6% from 14%. We noted in a research report in October that earnings consensus could be subject to a bigger cut of 6-8%. Earnings are now expected to rise 8% in 2024, but from lower provisioning, not better revenue.
On the contrary, we believe Qatari banks’ margin may stabilize into 2024, which should drive higher net interest income amid loan expansion of 5% in 2024 (2% expected this year). It may be hard to cut cost of risk in 2024 despite consensus expectations of lower provisioning as asset quality may stay pressured if rates stay high for longer.
Qatari banks’ misfortunes cost $14 billion market value
Qatari banks have underperformed by 27%, or $14 billion in market values, since October 2022 due to earnings downgrades, validating our view that 14% consensus 2023 earnings growth of October last year was high by 6-8 points. Qatari banks trade now at 0.95x price- to-forward book, or 11x price to earnings — below peers and for the first time below UAE banks. Current consensus points to 2024 earnings growth of 8% on improved cost of risk, rather than the top line.
We believe 2024 revenue expectations appear low and the sector could beat on revenue as margin may stabilize and loan expansion accelerates. A downward shift in Fed policy is also supportive to Qatari banks’ prospects as it eases cost-of-funding drag, stabilizes asset quality and aids private-sector loan demand. The risk to consensus is higher rates for longer.
Catalysts
We believe these catalysts could act as important triggers for this idea in coming months.
Qatari banks’ rating punished; Fed policy and Turkey headwinds
Qatari banks’ 0.96x price-to-forward book value is below UAE peers’ 1.3x, and a full 32% discount to Saudi peers. QIB’s premium pricing reflects both high returns and private-sector exposure vs. QNB — the government lender facing international-exposure challenges. QIB could edge lower on funding-cost headwinds that are only likely to ease when the Fed’s rate-tightening cycle ends. CBQ’s lower rating than QIB’s is due to weak asset quality and Turkey exposure that brings profitability headwinds from lower CPI-linked gains. A return to orthodox Turkish monetary policy may help both CBQ and QNB.
Al Rayan’s ROE may improve from 2024 with a focus on growth and better coverage, but may still underperform peers. Doha Bank’s low-end ranking awaits rewards from the new strategy and enhanced, both likely long-term projects.
