French Banks: Credit Agricole Looking Cheap, Says Jefferies

French Banks: Credit Agricole Looking Cheap, Says Jefferies

French banks BNP Paribas SA (ADR) (OTCMKTS:BNPQY) (EPA:BNP), Societe Generale SA (ADR) (OTCMKTS:SCGLY) (EPA:GLE), and Credit Agricole SA (EPA:ACA) (OTCMKTS:CRARY) are all currently trading at the multiple 1x TNAV, but investors may be undervaluing the CASA’s ability to increase dividend yields this year because of the bank’s unusual structure. When the bank holds its investor day on March 20, Jefferies analyst Omar Fall expects to hear plans on how it will reach 13% RoTE by 2015 (compared to 10% at Societe General and BNP) and bring its capital structure up to standard.

Stock dilution concerns may be answered this year

Credit Agricole SA (EPA:ACA) (OTCMKTS:CRARY) has said that it will target a 35% payout from this year on, which should have investors excited, but the Caisses Regionales which collectively own 56% of Credit Agricole shares have made it a policy to take their dividends in additional shares, diluting the real yield for other shareholders.

“Credit Agricole has targeted that the Caisses Regionales will be continuing with this policy only until CASA reaches a 9% fully loaded core Tier 1 ratio. Given that strong capital generation in Q4 already saw this number reach 8.3% and the further deleveraging we expect, we forecast this will be achieved in 2014,” writes Fall.

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