On Friday, a Morgan Stanley analyst upgraded the stock rating of Societe Generale SA (GLE:FP) (OTC: OTC:SCGLY) from Equal-weight to Overweight, simultaneously increasing the price target to €36.00, up from the previous €29.00. The upgrade was based on the bank's performance in the third quarter, which marked a notable achievement for the company.
Societe Generale succeeded in maintaining its guidance on French Retail Net Interest Income (NII) throughout the quarter, surpassing expectations with an NII 2% higher than Morgan Stanley's estimate. This positive outcome has led to an optimistic forecast for the bank's NII growth in 2025, which is expected to defy the anticipated average decline of 2% across other banks covered in the eurozone.
The bank's performance is attributed to several factors, including the systematic repricing of its mortgage book, a halt in the shift of deposit mix towards term deposits, and a predicted decrease in Livret A rates in February. These elements contribute to the bank's ability to outperform in a challenging economic environment.
Morgan Stanley's projections for Societe Generale's pre-provision operating profit (PPOP) in French Retail for 2025-26 are approximately 6% higher than the consensus.
Despite this, the firm maintains that its estimates are conservative, accounting for a mere €400 million year-over-year growth in NII, which solely reflects the absence of impact from hedges. There is potential for further gains if sight deposits begin to increase once more.
The upgrade and new price target reflect confidence in Societe Generale's capacity to navigate the current financial landscape and its potential for continued growth in the coming years. The bank's ability to maintain guidance and outperform estimates in the third quarter has been a critical factor in Morgan Stanley's reassessment of the stock's outlook.
In other recent news, Societe Generale has been experiencing significant changes. The bank has faced a notable decline in the STOXX European banks index, contributing to the largest weekly loss since March 2023. This decline was further exacerbated by a 2.1% drop on Friday, following a 4.5% slide on Thursday.
Societe Generale's shares fell 8% after the bank announced a reduction in its net interest income guidance for its French retail operations. Additional losses on Friday led to the shares reaching their lowest point since October.
Citi has downgraded Societe Generale's stock outlook from Buy to Neutral, adjusting the price target to €26.00, down from the previous €33.00. This downgrade is attributed to ongoing challenges in the French retail sector and an unclear recovery path for the bank. Despite these developments, Societe Generale's stock valuation remains a point of interest due to its potential attractiveness with profitability improvements.
These events are part of the recent developments affecting Societe Generale, with a cumulative effect leading to a loss of nearly $100 billion in market value for Europe's banks in just one week, according to LSEG data.
InvestingPro Insights
Following Morgan Stanley's upgrade of Societe Generale SA (OTC: SCGLY), InvestingPro data provides additional context to the bank's financial performance and market position. The stock's Price to Book ratio of 0.28 as of Q2 2024 aligns with the InvestingPro Tip that SCGLY is "Trading at a low Price / Book multiple," potentially indicating an undervalued stock and supporting Morgan Stanley's optimistic outlook.
The bank's profitability is evident from its operating income margin of 22.21% over the last twelve months, and InvestingPro Tips confirm that the company has been "Profitable over the last twelve months." This profitability, coupled with the fact that SCGLY is "Trading near 52-week high," reflects the market's positive sentiment, which is in line with Morgan Stanley's upgrade.
Investors should note that SCGLY has shown strong recent performance, with a 22.49% price total return over the last three months. This aligns with the InvestingPro Tip highlighting a "Strong return over the last three months," suggesting momentum that could support the new Overweight rating.
For those seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for SCGLY, providing a deeper understanding of the company's financial health and market position.
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