Broad Credit Expansion And Cost Efficiency Will Sustain A Stable Long Term Outlook

Catalysts

About Mizrahi Tefahot Bank

Mizrahi Tefahot Bank is an Israeli bank that provides mortgages, corporate and middle market lending, and other banking services.

What are the underlying business or industry changes driving this perspective?

• Broad based credit expansion across mortgages, corporate and middle market lending is building a larger interest earning asset base that can support future revenue and earnings if loan quality remains in line with current provisioning.
• Management focus on keeping a balanced credit portfolio with what they describe as adequate risk management and a 0.04% ratio of provisions to loans in Q3 2025 suggests room to sustain credit growth without a proportionate rise in credit costs, which can support net profit and return on equity.
• Very low cost income ratio of 34.2% in Q3 2025 and reference to expenses in 2024 being a notch down versus 2023 point to a long term efficiency focus that, if maintained as the balance sheet grows, can help protect net margins.
• Robust liquidity with a high share of core deposits and capital ratios that are aligned with growth plans give the bank capacity to keep funding credit expansion, which can support financing revenues and help maintain the current return on equity profile.
• Healthy demand for mortgages and management’s intention to retain market share in a competitive market suggest the bank is positioned to keep its key franchise intact, which can support interest income and fee related revenues over time.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Mizrahi Tefahot Bank's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 38.8% today to 42.4% in 3 years time.
• Analysts expect earnings to reach ₪6.8 billion (and earnings per share of ₪26.18) by about June 2029, up from ₪5.6 billion today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 12.9x on those 2029 earnings, up from 9.1x today. This future PE is greater than the current PE for the IL Banks industry at 9.1x.
• Analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.3%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Very strong broad based credit growth across mortgages, corporate and middle market lending could become a risk if macroeconomic or geopolitical conditions worsen. A larger loan book in a stressed environment can pressure asset quality and require higher provisions, which would weigh on earnings and return on equity.
• The current 0.04% ratio of provisions to loans is very low. If borrowers' financial strength weakens over time due to changes in domestic or global economic conditions, the bank may need to increase provisioning from this level, which would directly reduce net profit and could compress net margins.
• The bank is operating in a very competitive mortgage market and aims to retain market share. Any prolonged price competition or pressure on mortgage spreads could limit the benefit of balance sheet growth and may lead to lower financing revenues and slimmer net interest margins.
• Changes in regulation, taxation or client relief measures from the Bank of Israel, similar to the extra tax paid in 2025 and the extensive client relief outline, could recur or intensify over the long term and increase the bank's cost base or limit revenue. This would affect net profit and return on equity.
• Persistent geopolitical uncertainty and macroeconomic volatility in Israel, as highlighted by management, could impact public preferences, capital markets, and borrowers' behavior. This may slow credit demand, increase risk costs or constrain dividend capacity, all of which would affect revenue growth and earnings stability.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of ₪257.08 for Mizrahi Tefahot Bank based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be ₪16.0 billion, earnings will come to ₪6.8 billion, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 9.3%.
• Given the current share price of ₪195.4, the analyst price target of ₪257.08 is 24.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.