Why Deutsche Bank’s 2019 Losses Are Likely To Be Lower Than Market Expectations

by Trefis Team
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Deutsche Bank (NYSE: DB) will release its Q4 and full-year 2019 results on Thursday, January 30. Trefis details expectations from the German banking giant in an interactive dashboard, parts of which we highlight below. We believe that Deutsche Bank will likely report earnings, as well as revenues ahead of the consensus estimates. The bank’s revenues would have decreased 5% year-on-year to €24 billion (ahead of the consensus estimate of €23 billion), primarily due to a steep decline in trading revenues as well as advisory and underwriting revenues. Moreover, we expect the bank’s EPS to be (-€0.29) mainly due to one-time impairment and goodwill charges incurred as a part of the large-scale restructuring plan undertaken by the management. However, our EPS estimate is higher than the consensus estimate of (-€0.82) as we believe that the bank would have been able to cut down its operating costs sharply. Although our estimates are higher than consensus numbers, we believe that the reorganization of the bank would take time and estimate Deutsche Bank’s valuation to be $7 a share, which is roughly 20% behind the current market price.

Trefis shines the spotlight on key assumptions and data for Deutsche Bank, and our hypothesis lays out one possible set of expectations. You can chime in with your expectations for Deutsche Bank’s FY19 earnings in our interactive dashboard.

(1) Deutsche Bank’s revenues would have decreased y-o-y to €24 billion but will be above the consensus estimates

  • Trefis estimates Deutsche Bank’s 2019 revenues to be  €24 billion, above the consensus estimate of  €23 billion.
  • Deutsche Bank’s total revenue has seen sizable headwinds since 2015 and has shrunk from €33.5 billion to around €25.3 billion in 2018.
  • FY 2019 was a year of transition for Deutsche Bank, with the bank announcing its most extensive restructuring plan to date. The plan would have weighed on the bank’s top and bottom-line.
  • The bank’s revenue would have declined due to a steep fall in the bank’s sales & trading revenues. At the same time, advisory and underwriting revenues are also likely to have tumbled due to a global decline in the debt and equity underwriting deal volumes.
  • The bank’s asset management business, however, would have seen steady growth due to a rise in the assets under management.
  • For FY 2020, we expect Deutsche Bank’s revenue to fall by 1% (implying a €220 million reduction in total revenues) primarily due to a y-o-y decline in sales & trading revenues coupled with the impact of macroeconomic uncertainty across segments.

(2) EPS expected to be -€0.29 due to one-time goodwill impairment and restructuring charges

  • Deutsche Bank’s 2019 earnings per share (EPS) are expected to be -€0.29 per Trefis analysis, significantly higher than the consensus estimate of -€0.82 per share.
  • A decrease in revenues, as well as one-time goodwill impairment and other restructuring charges, would have negatively impacted the company’s bottom line, resulting in losses for the bank.
  • As we forecast Deutsche Bank’s revenues to drop at a faster rate than expenses in 2019 (-5% vs. -1.7%), this will result in a sharp decline in Deutsche Bank’s Net Income Margin figure from 1.1% in 2018 to -2.5% in 2019.
  • The reduction in expense is likely to be driven by a steep decline in general & administrative expenses, as well as lower personnel expense, partially offset by impairment charges.
  • For 2020, we believe that stable revenues, coupled with a steady decline in expenses, will result in the adjusted net income margin expanding to more than 3%.

(3) Stock price estimate ~20% lower than the market price

  • A trailing P/S multiple of 0.5x looks appropriate for Deutsche Bank’ stock, which is lower than the current implied P/S multiple of 0.7x
  • Trefis’ forecast for Deutsche Bank’s 2019 earnings is well ahead of the market expectations, but P/S multiple is lagging, working out to a fair value of $6.70 for Deutsche Bank’s stock, which is roughly 20% behind the current market price of around $8.40.

Additionally, you can input your estimates for Deutsche Bank’s key metrics in our interactive dashboard for Deutsche Bank’s pre-earnings, and see how that will affect the company’s stock price.

 

See all Trefis Price Estimates and Download Trefis Data here

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