Is Deutsche Bank Stock Fairly Priced?
Deutsche Bank’s stock (NYSE: DB) has gained 6% YTD, as compared to the 5% rise in the S&P500 over the same period. Further, it is currently trading at $12 per share, which is 20% below its fair value of $15 – Trefis’ estimate for Deutsche Bank’s valuation. The bank posted better-than-expected profits in the recently released fourth quarter. It reported a net €6.3 billion – up 7% y-o-y. However, this translated into $6.45 billion – down 4% y-o-y, due to the negative impact of foreign exchange movements (Note – Deutsche Bank originally reports in € (Euros), the same has been converted to USD for ease of comparison). In Euro terms, the revenues were driven by growth in the corporate bank and private bank segments, primarily due to higher net interest income. However, the growth was partially offset by weakness in the investment bank and asset management businesses. On the cost front, the non-interest expense as a % of revenues dropped due to a favorable decrease in compensation costs and general & administrative expenses. Further, the company received a one-time income tax benefit of $1.2 billion in the quarter. Overall, the adjusted net income improved from $145 million to $1.8 billion.
The bank’s top line grew 7% y-o-y to €27.2 billion in FY 2022. However, it translated into a drop of 5% to $28.7 billion due to negative FX movement. The improvement in the Euro terms was mainly due to higher net interest income due to interest rate hikes and loan growth. However, It was somewhat offset by lower revenues in the investment banking and asset management divisions. Altogether, the adjusted net income increased from $2.37 billion to $5.32 billion in the year, due to lower expense figures and a one-time income tax benefit.
Moving forward, we estimate Deutsche Bank’s revenues to remain around $29.42 billion in FY2022. Additionally, DB’s adjusted net income is likely to remain around $4.26 billion. This coupled with a GAAP EPS of $2.07 and a P/E multiple of just above 7x will lead to a valuation of $15.
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