Admission: Autonomous analyst admits misjudgment: Deutsche Bank shares can now score with these factors | message
Shares in this article
Revaluation after slipping
Deutsche Bank with clear potential
Unclear development in 2021
Autonomous Analyst updates rating
Under the title “Deutsche Bank: Beyond Repair”, the analysis company Autonomous Research LLP, under the leadership of Stuart Graham, published a study on Germany’s largest credit institution on September 18, 2017. In the analysis, the strategists referred to the Deutsche Bank share as a “value trap”, ie a share that may appear cheap, but does not increase or even decrease in value in the long term. At the Frankfurt banking congress “Banks in Transition” in summer 2018, Graham spoke to representatives of the industry – and also gave a gloomy outlook for the German banking sector. “All segments of the German banking industry are likely to have a difficult future,” Deutsche Welle quoted the analyst as saying. While smaller bank branches of the digitalization Graham believes that large banks are threatened by low interest rates in the euro area and the slow movement towards digital business. “Deutsche Bank in particular will be in a vulnerable position for the next one to two years and needs positive development in the global economy and the markets on its side,” said Graham. “Unfortunately, I’m afraid that won’t be the case.” But now the autonomous strategist is at least partially backing down.
Previous recommendation “very bad advice”
According to reports in the “Handelsblatt”, the analysis house published a new study on November 30th entitled “Mea culpa” (Latin for “through my fault”, “my mistake”) in which Graham admits: “In retrospect, our underperform- Rating for Deutsche Bank is very bad advice. ” Accordingly, he oriented himself to the details, but neglected the overall picture of the credit institution.
As part of this, Graham raised his price target for Deutsche Bank shares from EUR 5.34 to EUR 5.70, but is still well below the current price of EUR 9.46 (XETRA closing price on December 8, 2020) .
Nevertheless, he sticks to his “underperform” recommendation and declares that although he has come to a less negative assessment, he has not yet given a positive assessment. “This is because I am more skeptical than the consensus with regard to earnings and risk provisioning,” the strategist told Handelsblatt. Nevertheless, he sees great potential at the bank, which he explains in the analysis in the form of five points.
Good earnings development and stabilized bond trading
The Autonomous analysts previously saw the risk that Deutsche Bank’s earnings could fall under the restructuring plans and the Corona crisis compared to the previous year. But this case has not occurred – on the contrary. The earnings of the group have developed better than, for example, with the US competitor JPMorgan. “The Deutsche Bank looks like a normal bank again,” the strategists sum up the competitiveness of the institute.
In bond trading, Deutsche Bank also performed better than its competitors, despite the pandemic. Here, the analysis house also rates positively that the previous, steady downward trend in market shares of the credit institution since the third quarter of 2020 has now ended. Against the background of the increase in earnings, the difficult market situation is currently less of a consequence.
Loan risk provisions
For a long time, analysts criticized loan growth in the investment banking sector, also because of the low level of loan protection and the low level of provisions for possible failures. In addition, there were more and more loan deferrals. But here, too, the strategists admitted mistakes: “In doing so, we overlooked the fact that Deutsche Bank had delivered its guideline that risk provisions would remain at 0.35 to 0.45 percentage points of the loan volume,” the Handelsblatt quoted from the Study. Nevertheless, further setbacks in this area are possible if the assessments of numerous experts that many companies will have to file for bankruptcy in 2021 and that loans can no longer be paid are true. Graham finds words of praise for the fact that Deutsche Bank published details of its loans at all – a procedure that only a few competitors would have shown.
Cost management and location
According to Graham, the good performance of Deutsche Bank shares this year is also due to the fact that the European Central Bank has issued a ban on dividends for banks, but Deutsche Bank would have refrained from paying dividends anyway due to its restructuring measures. In general, the institute has shown that it handles its costs well, something that investors in particular are said to have been enthusiastic about.
Another advantage that Deutsche Bank can score with is its location. Compared to other states of the European Union, Germany was able to benefit significantly on an economic basis.
However, it remains to be seen whether the major bank can still make use of these five factors next year, according to Autonomous. According to Graham, the dividend ban of the ECB will probably be abolished before the summer. In his opinion, investors will continue to focus more on “corona losers” in 2021, i.e. on the companies that have suffered particularly from the crisis and clearly on the availability of a vaccine and hope for a resulting normalization. Nevertheless, Deutsche Bank benefits from the fact that it has now been able to give up its crisis status. Graham is also optimistic about the Grobank’s cost management.
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