Analyst Note| Niklas Kammer, CFA |
No-moat Commerzbank reported a good first quarter. Pretax profits came in at EUR 529 million versus just EUR 73 million a quarter ago. Income generation and operating expenses are trending in the right direction, with total revenue up 12% versus the same period a year ago and operating expenses down 2%. We are raising our fair value estimate to EUR 9 per share after lifting our revenue assumptions for Commerzbank. With the prospect of higher interest rates to be set by the European Central Bank and market rates already reflecting such a shift, we expect Commerzbank to benefit. Negative interest rates had been one of the headwinds the bank faced over the last years. That said, we currently still only assume a return on tangible equity of 5% by 2024. While Commerzbank has started to turn things around and the shares look undervalued, we believe risks remain high, driven by macroeconomic risks in tandem with a still-low profitability outlook. As a result, we believe it is likely that investors in Commerzbank may experience greater earnings volatility relative to other banks in our coverage.