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20/05/24
235
Bank Sector on Stoxx 600 Has More Upside – Goldman
According to Goldman Sachs, European banks have managed to break the decade-long spell of underperforming, and the investment bank sees room for more expansion.
In a note dated May 17, the bank said the best-performing sector in Europe year-to-date was the STOXX 600 Banks and it has risen by over 25% in returns and has outperformed the market by a factor of 3 since the beginning of 2022.
Goldman said the performance reflects a more recent shift in sentiment together with continued strong fundamental momentum.
The environment of higher rates is driving a resurgence in earnings power, and the Q1 earnings season has been another strong quarter with a 9% gain on profit-before-tax and a positive surprise of 2% on revenues.
Goldman said they have reiterated guidance and have seen continued positive commitments on capital return. Earnings revisions came after a nearly mechanical pattern of upgrades and have been positive for 5 out of the past 6 earnings seasons.
Although European bank valuations are at an especially steep discount, they have recently risen to 7x from a trough of 5x.
The bank said it believed there was room for multiple expansions with the macro-backdrop of the Euro Area broadening and improving. Shareholder returns were also still accelerating.
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