Article / 07 May 2014 at 9:28 GMT

SocGen's Russia writedown hit dominates European results Wednesday

Head of Equity Strategy / Saxo Bank
Denmark
  • Wednesday's European earning results produce mixed bag
  • SocGen surprises market after EUR 525 million writedown on Russia
  • Commerzbank shares slip 4.8 percent on net income slip

By Peter Garnry

There have been many earnings releases this morning in Europe and below is a quick run through of the results, our take away and our model's views. Our overall view is that it was a bag of mixed results following the rest of the European earnings season.

Credit Agricole shares rise 3 percent on Q1 result...with net income in line with estimates at EUR 868 million. As was seen with the results at Danske Bank, Lloyds Banking Group and Royal Bank of Scotland, the result was driven by good cost controls and lower loan impairments.

ING Q1 results in line with estimates...and shares are down around 0.6 percent in early trading. Underlying profit was EUR 988 million below estimates at EUR 1.07 billion. The insurance unit is getting USD 1.2 billion in capital injection ahead of IPO which will become a positive catalyst medium term for the share price as it will simplify the business and unlock value for shareholders.

SocGen surprises with EUR 525 million goodwill writedown on Russia...pushing Q1 net income down to EUR 315 million compared to EUR 868 million expected. Excluding the goodwill writedown, the Q1 result is only slightly lower than estimates. Shares are down 1.5 percent in early trading. Consumer banking performed well while investment banking as expected was under pressure with earnings down 16 percent. Management is confident about the credit portfolio in Russia but says conflict has increased uncertainty and business risk.

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The crisis in Ukraine is having a direct impact on the Q1 earnings of SocGen. Photo: Thinkstock

Siemens confirms FY 2014 forecast of 15 percent EPS growth...which is what investors are focusing on, pushing the shares up 0.2 percent in early trading. Q2 profit from continuing operations before tax was EUR 1.61 billion below estimates of EUR 1.78 billion. Q2 order intake was EUR 18.4 billion compared to EUR 21.2 billion expected. Siemens is still behind GE and ABB in terms of profitability and that will continue to be the agenda for the new CEO. Our model has a 12-month return forecast at 10 percent.

AB InBev Q1 organic growth beats estimates...with revenue growth year-on-year at 8.9 percent compared to 6.4 percent estimated. Shares are up 0.5 percent in early trading. Management seems confident about volume growth highlighting emerging market turnaround with Brazil and Mexico turning back to growth. AB InBev has spent 17 percent more on sales and marketing ahead of the World Cup in Brazil this summer and this event could be a positive catalyst for the shares. Our 12-month return forecast is currently 10 percent. The stock trades at 19.6 times 12-month forward EPS.

Commerzbank down 4.8 percent on disappointing Q1 result...with net income at EUR 200 million compared to EUR 227 million estimated. But the most worrying part is the drop interest income showing lack of quality growth. The weak results come on the backdrop of increasing risk-weighted assets which put further pressure on the regulatory capital base. Ahead of today's results our model had a 12-month return forecast of 16 percent, one of the most bullish predictions among European banks.

Carlsberg shares down 0.8 percent in early trading on Russia outlook...that is cut as the political turmoil is hurting volume in one of Carlsberg's key markets. The brewer expects volume to decline by mid-single digits this year. Q1 EBIT excluding certain items was DKK 453 million compared to DKK 685 million expected. The shares were down as much as three percent but has since recouped the most. Our model has a 12-month return forecast of seven percent.

HSBC shares down 1 percent on muted outlook...and Q1 profit down 20 percent but in line with estimates. HSBC's largest market is Asia and the slowdown and regulatory requirements have hurt results. Our model has a 12-month return forecast of 13 percent. The shares trade at 12.8 times 12-month forward EPS.
 
-- Edited by Martin O'Rourke

Peter Garnry is head of equity strategy at Saxo Bank. More of Peter's analysis can be found here

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