Deutsche Bank (NYSE: DB) is scheduled to report its fiscal Q2 2021 results on Wednesday, July 28. We expect Deutsche Bank to edge past the consensus estimates for revenues, while its earnings are likely to miss. The bank reported better than expected results in the last quarter, driven by a 25% y-o-y rise in net revenues and lower provisions for credit losses. The top-line benefited from strong growth in the investment bank division (sales & trading and investment banking business), partially offset by lower net interest income (NII). We expect the same trend to drive the second-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 $12 per share, which is at the same level as the current market price of around $12. Look at our interactive dashboard analysis on Deutsche Bank’s pre-earnings: What To Expect in Q2? for more details.
(1) Revenues expected to be slightly ahead of the consensus estimates in Q2
Trefis estimates Deutsche Bank’s fiscal Q2 2021 revenues to be around $7.21 billion, 2% above the $7.10 billion consensus estimate. It reported revenues of $27.4 billion in 2020 – up 6% y-o-y. This was mainly driven by strong growth in the sales & trading and investment banking businesses, which is in sync with its peers. The top-line was partially offset by a 15% y-o-y drop in the NII due to interest rate headwinds, which generates close to 50% of the DB’s revenues. Further, the same trend continued in the first quarter of 2021 also, with the bank posting a 44% y-o-y jump in the investment bank division, partially offset by a 6% drop in the NII. We expect the same momentum to govern the second-quarter results.
Moving forward, we expect the sales & trading, and investment banking revenues to normalize over the coming months, with the expected recovery in the economy. Further, the interest rates are likely to remain below the pre-Covid-19 levels for some more time, hurting its NII. That said, the bank is likely to benefit from the recovery in consumer spending levels. Additionally, the asset management revenues are likely to continue their growth trajectory driven by higher Assets under Management (AuM). Overall, the bank’s revenues are likely to remain around $29.2 billion in FY2021. Our dashboard on Deutsche Bank’s revenues offers more details on the company’s segments.
2) EPS is likely to miss the consensus estimates
Deutsche Bank’s Q2 2021 adjusted earnings per share (EPS) is expected to be $0.37 per Trefis analysis, almost 8% below the consensus estimate of $0.40. Its adjusted net income rose from -$5.9 billion to $712 million in 2020, primarily because of higher operating margin due to cost reduction measures. However, the positive impact was partially offset by higher provisions for credit losses. DB, Germany’s largest lender, increased its provisions in the year to compensate for the higher risk of loan defaults. That said, the figure has decreased over the recent quarters, including an 85% y-o-y drop in the first quarter of 2021. We expect the same trend to continue in the FY2021 Q2 results.
We expect the firm to continue delivering on its cost-saving measures in FY2021. Hence, lower expenses coupled with higher revenues will likely improve its net income margin. Further, the favorable decrease in the provisions for credit losses will boost the EPS figure. Overall, the bank is likely to report an EPS of around $1.16 in FY2021.
(3) Stock price is at par with the current market prices
Going by our Deutsche Bank’s valuation, with an EPS estimate of around $1.16 and a P/E multiple of around 11x in fiscal 2021, this translates into a price of $12, which is at the same level as the current market price of around $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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