Stock Spotlight: SocGen share price revival hopes flounder as fresh strategy disappoints

investmentweek.co.uk:

The plan targeted a cost-to-income ratio of less than 60% to boost profits by 2026.

France's third-largest bank saw its shares fall by 12.6% on 18 September, after its newly appointed CEO Slawomir Krupa said he anticipated little to no growth in yearly sales over the next few years, and presented a three-year strategic plan that was not well-received by investors. 

The plan targeted a cost-to-income ratio of less than 60% to boost profits by 2026. This is on top of expecting annual revenue growth of 0-2% by 2026 and a return on tangible equity ratio of 9-10% by 2026. 

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Will Howlett, equity research analyst at Quilter Cheviot, said the targets were «rather uninspiring», particularly as many European banks have shown improved profitability with returns on tangible equity «well above» 10% on the back of higher interest rates.

Meanwhile, Johann Scholtz, equity analyst at Morningstar, argued that such a sharp sell-off seemed like an overreaction, with the market «clearly pricing in higher profitability guidance and possibly more aggressive disposals of non-core businesses».

Krupa, who took over in May in the bank's first CEO change since 2008, told reporters the plan was «a realistic path, in which promises are less important than our ability to deliver them».

According to Scholtz, SocGen's previous management team regularly failed to meet targets but the new management may have «erred on the side of caution» in setting out its targets.

Under former CEO Frédéric Oudéa, the bank underwent a number of restructurings, and its share price has lagged behind peers since the Global Financial Crisis and a rogue trader scandal in 2008. 

Russ Mould, investment director at AJ