Deutsche Bank Shares Rally on Improved Revenue Outlook

The European banking totem's stock is running higher despite news of an overall drop in profits. For now, investors are still impressed

Niklas Kammer 1 February, 2024 | 4:02PM
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Deutsche Bank (DB) shares are up 4.5% this afternoon after the banking giant reported fourth-quarter 2023 profits before tax of €698 million (£59.6 million), 10% lower than a year ago, when it posted an exceptionally strong quarter.

Deutsche also disappointed relative to consensus estimates collected by the bank itself on revenue of €6.658 billion (2% below consensus estimates) and adjusted costs of €5.305 billion (3% above consensus estimates). The reasons were a still-weak backdrop for the investment bank and its fixed-income trading operation, as well as the asset management segment performing below expectations.

In light of this, we maintain our fair value estimate of €13 per share. We assign it no Economic Moat Rating.

Why Are Deutsche's Shares up, Then?

Despite the misses on revenue and expenses relative to consensus estimates, Deutsche has had a decent year. Its post-tax return on tangible equity of 7.4% for 2023 is still below our cost of capital assumptions for Deutsche, but we note positive progress toward a more structurally-sound income statement and balance sheet over the last couple of years.

This progress is also reflected in Deutsche's ability to deliver shareholder distributions based on sound capitalisation and improved profitability. For 2023, the bank proposed a dividend of €0.45 per share.

Deutsche has adjusted its revenue guidance upward toward €32 billion by 2025, corresponding to a CAGR between 5.5% and 6.5% versus a target of 3.5% to 4.5% previously. Large chunks of the improved outlook are expected to come from the Numis acquisition.

Deutsche now aims to become an origination and advisory franchise ranked between sixth and eighth globally. While we agree M&As have likely seen a trough and should drive revenue growth in future, we are concerned that these ambitions will increase cost levels as Deutsche looks to attract talent.

Key Morningstar-Metrics for Deutsche Bank

• Fair Value Rstimate: 13 EUR;
• Morningstar Rating: 3 stars;
• Morningstar Economic Moat Rating: None;
• Morningstar Economic Moat Rating: Medium.

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Niklas Kammer  is an equity analyst sfor Morningstar

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