Credit Agricole Is Undervalued For First Time Since IPO: Jefferies

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Jefferies has initiated coverage of Credit Agricole SA (EPA:ACA) (BIT:ACA) (OTCMKTS:CRARY), rating it a Buy and saying that the bank is a good long-term value buy for the first time since its 2001 IPO.

Credit Agricole SA (EPA:ACA) (BIT:ACA) (OTCMKTS:CRARY) has had one of the worst performing investment banking units in Europe, and a big part of the reason why Jefferies considers it a good proposition is because the company is because the bank is now focusing on the retail functions that have long been its strength.

Credit Agricole SA revenue v gross assets IB

“Unlike its peers, the group has left behind its universal banking pretensions and over time this should now allow it to become what it always should have been, namely a retail and asset gathering focused French bank with a more sensible balance sheet structure,” writes Jefferies equity analyst Omar Fall.

Credit Agricole to reach a Basel 3 Common Equity Tier 1 ratio

He believes that Credit Agricole SA (EPA:ACA) (BIT:ACA) (OTCMKTS:CRARY) will be able to move past the internal capital/leverage debate and reach a Basel 3 Common Equity Tier 1 ratio of 10 percent with a ratio of 3 percent by 2015, and that CASA can reach a steady return on tangible assets of 14 percent. The report sets a price target of €10.3, quite the upside from the stock’s current price of about €7.91 and at least 10 percent above 2014-2015 consensus.

Prices for French banks in general are low and likely to grow, but Credit Agricole SA (EPA:ACA) (BIT:ACA) (OTCMKTS:CRARY) in particular will benefit from national policies because of its new business focus. “We expect ongoing earnings upgrades as Credit Agricole SA is the purest play on a domestic recovery. In addition, the group is a key beneficiary from the Livret A rate at record lows, both in retail banking but potentially more importantly, through life insurance.”

Credit Agricole SA segment assets

European sovereign debt crisis

Credit Agricole SA hasn’t actually gotten rid of its investment banking unit, so the Jefferies report is partially speculative, aside from the industry-wide risks of a European sovereign debt crisis or low demand, management may not take the path that Jefferies expects. The ratios of tier 1 assets and leverage have already met regulatory demands, but Jefferies expect further action to satisfy equity investors.

Jefferies analysts Joseph Dickerson, William Davison, and Jean Farah also contributed to the report.

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