RBC downgrades Commerzbank on rising execution risk from UniCredit plans

Investing.com -- RBC Capital Markets downgraded Commerzbank to "sector perform” from "outperform" on Friday, saying UniCredit’s plans for the German lender increase execution risks and make its earnings outlook harder to assess.

RBC cut its price target to €40 from €43, raising its cost-of-equity assumption to 12% from 11% to reflect greater uncertainty. Commerzbank shares closed at €39.37 on Thursday.

The brokerage said UniCredit was likely to use its increased influence to push through its plans, but questioned whether its assumptions on cost savings, restructuring charges and valuation would be achieved once it gained full access to Commerzbank.

UniCredit has secured 49.65% of Commerzbank’s voting rights and plans to take control from Jan. 1, 2027, subject to expected European Central Bank approval by year-end.

RBC’s base case assumes Commerzbank remains a standalone business under an initial "Unlocked" phase. It estimates restructuring costs of €2.2 billion, cost savings of €1.4 billion and €650 million of lost revenue, alongside plans to release €4 billion of capital.

Taken together, the measures would increase RBC’s estimate for Commerzbank’s 2030 earnings per share by 7%, although the brokerage cut its forecast for shareholder distributions in 2027 and assumes these would be paid entirely as cash dividends.

In a later phase, which RBC calls "New Chapter", Commerzbank could acquire UniCredit’s German subsidiary HVB. RBC has previously viewed such a transaction as a potential strategic fit.

At a price of 25 billion, RBC estimates the deal would generate an 11% return on investment by 2030, rising to 13% if UniCredit delivers its full synergy target.

RBC expects Commerzbank to fund the potential acquisition with shares, which would increase UniCredit’s stake to between 67% and 70%.

Combined with the German government’s 8% holding, that would leave a relatively small portion of Commerzbank’s shares in public hands and could threaten its inclusion in major equity indexes such as the DAX.

The brokerage said a deal could also prompt UniCredit to make a mandatory offer for minority shareholders in its Polish subsidiary mBank. Commerzbank is scheduled to report third-quarter results on Nov. 5.

Original Article

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