Shares of French bank Societe Generale (OTC: OTC:SCGLY) fell by 7.1% in early trading on Monday, following the announcement of a new strategic plan for the period up to 2026. The plan, presented by CEO Slawomir Krupa, marks a shift from the bank's previous five-year plan spanning 2021 to 2025.
The newly outlined strategic roadmap sets an average annual revenue growth target of between 0% and 2% through 2026, with a return on tangible equity (ROTE) goal of between 9% and 10% in 2026 and a common equity Tier 1 (CET1) ratio of 13%. These targets indicate a departure from the previous five-year plan, which aimed for at least 3% revenue growth, a ROTE of 10%, and a CET1 ratio of 12%.
Analysts Flora Bocahut and Theo Massing from Jefferies expressed disappointment with the bank's revenue growth and ROTE targets. They criticized the lack of detailed information in the strategic plan and noted that while Societe Generale is aiming for a higher CET1 ratio, it has not provided clear indications of how it plans to achieve this goal.
The bank's plans to streamline its portfolio also lacked explicit information regarding which business sectors might be affected. Previously, Jefferies' analysts had anticipated stronger revenue growth from Societe Generale starting in 2024 compared to other sector players. However, the new targets suggest an average revenue growth rate of only 1% through 2026, falling significantly below these expectations.
Societe Generale held its Investor Day on Monday, where it communicated its new financial targets for the period of 2023-2026, using the results from 2022 as a starting point. The bank did not raise its profitability target, with the midpoint 9.5% ROTE being marginally below the previous 2025 target of 10%, and below the 12% generally targeted by large French peers such as BNP Paribas (OTC:BNPQY) (OTCQX:BNPQF) and Credit Agricole (OTC:CRARY) (OTCPK:CRARF).
Another key takeaway from the Investor Day is the lower payout ratio of 40-50% on reported net income from 2023. This is a shift from the previous target of a 50% payout on underlying net income, which largely ignores restructuring costs and other select items. As a result, it is expected that cumulative shareholder payouts in respect of 2023 will decrease relative to 2022.
In comparison to its French peers, Societe Generale targets a ROTE profitability some 2.5% lower than its closest competitors, despite similar cost-to-income ratios. As a result, it is likely to retain a structurally lower valuation than its closest peers, as is currently the case.
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