We recently initiated a position in a European bank: Société Générale. SocGen trades at less than 5x estimated 2026 earnings and is increasing its focus on shareholder returns. We believe it presents a compelling investment opportunity. Here is our investment thesis:
- Heavily discounted valuation: GLE trades at 45% of tangible book value and 4.2x 2026 per share earnings estimates.
- New CEO Krupa has been in the role for less than two years but has focused the bank on improving shareholder returns by selling businesses that don’t meet their risk-adjusted return hurdles, cutting costs, and driving less capital-intensive, fee-related revenue.
- BoursoBank, an online bank subsidiary, is driving significant growth. It is in a rapid customer acquisition mode, so earnings are temporarily muted due to customer acquisition costs. BoursoBank would have significant asset value if it were separately listed.
- Over the past few years, reduced risk-taking in trading businesses has led to a less volatile revenue stream.
- Has sold many foreign banking subsidiaries to reduce complexity and improve capital allocation.
- French retail bank unit is poised to produce improved results due to accelerating loan growth, lower deposit rates, and insurance in-flows.
- SocGen has several publicly listed subsidiaries that account for 20% of its earnings, but the value of SocGen’s stake in these shares is almost 40% of its market capitalization. We don’t expect SocGen to monetize all of these publicly listed subsidiaries, but we think they could easily sell the publicly listed retail banking businesses in Romania and Czech Republic as non-core and potential divestitures.
- We expect a fresh round of cost-cutting. SocGen’s cost structure has been terrible for decades, and we see ample opportunity to improve it.
- We expect management to raise ROE targets during 2025.
- We expect additional share buyback announcements in 2025.
- SocGen’s stock price could catch up to those of its European peers. The European bank index has climbed 55% over the last three years while SocGen’s stock has declined 4%.
We believe the sea-change of a French CEO talking about improving shareholder returns is noticeable. This seems like what we observed in Japan over the last few years. As management teams in Japan began to talk about shareholder returns, investors took notice and bid up stock prices. We believe there is the potential for this to repeat with SocGen.
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