We added BNP Paribas to our equity list with a target price of €74. This is based on 11x 2019 forecasted earnings (€6.72). BNP Paribas offers good exposure to the eurozone recovery at a decent valuation level.

We like the shares for the following reasons:

• They are trading on a forecasted earnings yield greater than 10% (2018 and 2019E)
• They are trading on an indicative gross dividend yield of 4.88%
• They are trading on a historic P/E of 10x compared to Western European Banks which are trading on a historic P/E of 12x
• BNP do not have any litigation issues pending
• The argument for a good stock with a positive outlook and attractive dividend falls into place for BNP Paribas

Also:

• We like the European banking sector and believe BNP Paribas is well positioned to benefit from future growth
• We expect interest rates in Europe to increase post 2018 and this will improve margins for banks
• We are bullish on the French economy

Comparing BNP Paribas to Societe Generale

• When comparing BNP to GLE, the forecasted earnings yield (on 2018 & 2019E) is very similar i.e. X>10%. Obviously that of GLE is at risk depending on what’s going to happen
• BNP and GLE are trading on an identical gross dividend yield of 4.88%
• BNP is trading on a historic P/E of 10x whereas GLE 14x
• BNP already paid its dues for the litigation issue
• If GLE had to rally so would BNP
• The argument for a good stock with a positive outlook and attractive dividend falls into place for BNP

Conclusion

With our positive economic outlook on the European economy in particular, we believe BNP Paribas is well-positioned to benefit from future growth. We believe the shares should be a core holding in a well-diversified portfolio.

About the company

BNP Paribas is a French international banking group with a presence in 75 countries. It was formed through the merger of Banque Nationale de Paris (BNP) and Paribas in 2000, but has a corporate identity stretching back to its first foundation in 1848 as a national bank

Disclaimer:

This article was issued by Kristian Camenzuli, investment manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.

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