Last Update 02 Sep 26
Fair value Increased 15%Though still a top pick, ING Groep is a classic hold now
ING Groep certainly has been having the better of my fair valuation back in August of last year, with shares of the Dutch bank rising some 3 Euros or more than 10 per cent up and above the fair price I had calculated back then.
By the same token, that definitely renders it priced to perfection now: The war on the Persian Gulf has been developing into a stand-off without an end in sight, elevating energy prices into the foreseeable future; the low-hanging fruit in the banking business on the continent have been harvested; and multiples at the very least and for these reasons will not expand any further from here.
What's more, a current discount rate of some 6 per cent is certainly not adequate for risks rising everywhere in the financial world; I deem around 9 per cent more on the mark, which taken altogether leaves a further 5 per cent upside at best. Hence, the shares are a classic hold now and should be monitored for partial profit-taking once markets might begin to shift into correction mode.
ING, of course, is a bank; and banks don't like falling interest rates, right? For the dominant stream of income is their core business model, i.e. borrowing short-term and lending long-term, reaping the difference in interest rates in the process. This is known as the net-interest income (NII), a key performance indicator for banks and other financial operators.
Now, you might expect that this wouldn't be a good time to buy bank shares, with interest rates way below their post-covid peak and the ECB set, if anything, to lower rates further if the impact from the Trump tariffs, say, or an escalating spat with China or both factors combined subdue European economies more than anticipated. And you would be right.
However, there are two factors in favour of bank stocks these days, and of ING Groep in particular. First, there is the pan-European drive among governments to invest heavily in public infrastructure that is screaming out for repairs and refurbishment after decades of neglect. Public Investment, in turn, is one of the key stimulants of economic activity, providing banks with more and better opportunities to lend, while steepening the rate curve at the same time, thus enhancing NII.
Additionally, ING is among the sector leaders when it comes to try and pivot away from NII as the predominant factor of profits. Instead, the industry in general and the Dutch bankers in particular aim to reap an ever higher share of income from fees for various services, be it client wealth management, M&A activities, debt underwriting etc. The past quarter demonstrates that ING has made ground in this effort at exactly the right time, while still standing to profit from the aforementioned EU investment initiative.
Yes, partly for the reasons given here, European banks and ING, too, have had a decent run already; but there's still a decent upside to be had, and a nice dividend on top of it. All this, however, has to be discounted by a rather higher rate than customary, for one single word: Trump.
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The user PittTheYounger has a position in ENXTAM:INGA. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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