Value Investors Club / INTESA SANPAOLO SPA (46115HBD8)

INTESA SANPAOLO SPA 46115HBD8

May 30, 2018 - 5:55pm EST by

apacs

			2018	2019
Price:	86.00	EPS	0.27	0
Shares Out. (in M):	15,860	P/E	9	0
Market Cap (in $M):	49,484	P/FCF	0	0
Net Debt (in $M):	0	EBIT	0	0
TEV (in $M):	0	TEV/EBIT	0	0

Description

Keeping this writeup fairly short whilst aware that short writeups aren't getting much love these days. Really just wanted to post the idea for discussion.

We think Intesa Sanpaolo’s senior unsecured bonds are attractive. With the recent jolt in Italian bonds, the 2028 paper has sold off to around 86 cents. These are currently yielding 5.7%. We think the selloff is a buying opportunity and these bonds could trade to par in a few months. Intesa is one of the best risks in the Italian banking sector and we think the equity is attractive as well.

Current Situation:

• President Sergio Mattarella vetoed euro-skeptic nominee Paolo Savona as Finance Minister and appointed Carlo Cottarelli (ex-IMF) as interim prime minister

• Risk off driven by fears of snap elections as early as September which could install a populist government

• New election could see Five Star or the League or an alliance win but unlikely that they will pursue an Ital-exit as most Italian voters are in favor of the euro

• Market is pricing a worst case election/referendum scenario in our view

Thesis on Intesa:

Intesa is the cleanest shirt amongst the Italian banks with the strongest capital buffer and the best NPL coverage

• Shares have sold off ~22% in the last 2 weeks

• Can maintain robust CET1 and dividend payout ratios even with NPL cleanup

• Trading at 0.8x book and 9-10x P/E

• Current dividend yield on the equity is 8.5%

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.

Catalyst

Re-rating of Italian risk once it is clear that Italy is not exiting the euro

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