NN IP: European financials ‘extremely undervalued’
NN IP estimates that banks’ discount to the market is close to 40% banks have only been cheaper during the peak of the TMT bubble.
In our European high dividend strategies, we are overweight the banking sector, which we now seesas extremely undervalued.
The Eurozone High Dividend strategy and the Pan-European High Dividend strategy both have just over 25% exposure to the Financials sector.
We estimate that banks’ discount to market is close to 40%, which is in line with the prevailing rate during the 2008/09 banking crisis.
Banks have only ever been cheaper during the peak of the TMT bubble and they are particularly out of favour in Europe. But this is not a credit crisis: there is abundant liquidity, extreme under-valuation and low investor exposure.
Banks have priced in a full Brexit and lending data suggests an improvement in their earnings per share. Credit default swap spreads and funding costs in relation to banks have also behaved well.
While we are overweight banks in Europe, however, this exposure is tempered by a close scrutiny of balance sheet quality.
Nicolas Simar, head of Team, European High Dividends, at NN IP