Deutsche Bank (NYSE: DB) is scheduled to report its fiscal Q1 2021 results on Wednesday, April 28. We expect Deutsche Bank to marginally beat the consensus estimates for revenues, while its earnings are likely to remain below expectations. The bank has surpassed the consensus estimates in each of the last three quarters, primarily due to strong results in its investment bank division (includes sales & trading and investment banking) and cost reduction measures. The same was also evident in its full-year 2020 results, where total revenues grew 6% y-o-y, driven by 33% y-o-y growth in the investment bank. Further, it reported a major jump in the profitability figures for the year, driven by its cost control measures. We expect the same trend to drive the first-quarter FY2021 results as well. (Note – Deutsche Bank originally reports in € (Euros), the same has been converted to USD for ease of comparison).
Our forecast indicates that Deutsche Bank’s valuation is around $10 per share, which is 19% below the current market price of around $12. Look at our interactive dashboard analysis on Deutsche Bank’s Pre-earnings: What To Expect in Q1? for more details.
(1) Revenues expected to be slightly ahead of the consensus estimates in Q1
Trefis estimates Deutsche Bank’s fiscal Q1 2021 revenues to be around $7.94 billion, marginally above the $7.90 billion consensus estimate. It delivered a strong performance in 2020 with total revenues increasing by 6% y-o-y to $27.4 billion. This was mainly driven by a 33% y-o-y growth in the investment bank division, which benefited from higher trading volumes and a jump in underwriting deals. That said, the bank suffered a 15% y-o-y drop in its net interest income (NII) due to the lower interest rate environment – net interest margin decreased from 1.44% to 1.25% in the year. The drop in NII, which contributes more than 50% of the total revenues, reduced the positive impact of growth in the investment bank segment to a large extent. We expect the same momentum to continue in the first quarter of FY2021.
The unusually higher trading activity and higher underwriting deal volume are due to the Covid-19 crisis and economic slowdown. However, as the economy moves toward normalcy, the higher volumes are likely to normalize, negatively impacting its investment bank revenues. On the flip side, improvement in the consumer spending levels is likely to benefit DB’s corporate and private banking businesses, although the lower interest rates are likely to stay for some time. Overall, the bank’s revenues are likely to remain around $27.7 billion in FY2021. Our dashboard on Deutsche Bank’s revenues offers more details on the company’s segments.
2) EPS likely to miss the consensus estimates
Deutsche Bank’s Q1 2021 adjusted earnings per share (EPS) is expected to be $0.40 per Trefis analysis, almost 9% below the consensus estimate of $0.44. The bank’s profitability figures saw a sharp rise in 2020, with its adjusted net income increasing from -$5.9 billion to $712 million. This improved the EPS figure from -$3.04 to $0.08. It could be attributed to growth in revenues and improvement in operating margin from -11.4% to 4.2% in the year. The jump in operating margin was driven by the cost reduction measures implemented under its restructuring plan. On the flip side, the positive growth was somewhat offset by an increase in provision for loan losses from $810 million to $2 billion. The bank has reduced its provision over the last two quarters on a sequential basis, signaling some recovery in the loan default risk. We expect the same trend to continue in the FY2021 Q1 results.
We expect the bank to continue delivering on its cost-saving measures in FY2021, significantly improving its net income margin – from 0.6% to around 7%. Further, its provisions for loan losses are likely to decline in the year with improvement in the economy. Altogether, the bank is likely to report an EPS of about $0.89 in FY2021.
(3) Stock price estimate 19% less than the current market price
Going by our Deutsche Bank’s valuation, with an EPS estimate of around $0.89 and a P/E multiple of 11x in fiscal 2021, this translates into a price of $10, which is 19% below the current market price of roughly $12.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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