Credit Agricole: Limited Interest Rate Sensitivity Can Help Lift Shares

Core Viewpoint - Crédit Agricole is positioned to deliver attractive returns through a combination of resilient earnings, a high dividend yield, and stable profitability despite limited sensitivity to interest rate changes, leading to a "Buy" rating for the stock [2][10][22]. Financial Performance - Crédit Agricole reported a net interest income decline in its French Retail Banking segment, which constitutes about 30% of its revenue, due to long-term fixed-rate mortgages making up 62% of its loan book [3][7]. - The bank's underlying net income has grown approximately 8% since 2021, with stable profitability reflected in a return on tangible equity (ROTE) of 12.6% in 2023, consistent with previous years [7][14]. Dividend Policy - The management's dividend policy aims for a 50% payout of net income, resulting in a dividend yield of around 7.5% based on current earnings [9][22]. - The 2023 dividend per share was approximately 24% higher than the 2021 payout on an underlying basis, indicating a positive trend in dividend growth [24]. Valuation Metrics - Crédit Agricole shares are trading at 0.79 times tangible book value per share, with a price-to-earnings (P/E) ratio of about 6.7x, suggesting a significant earnings yield of 15% based on historical ROTE [15][22]. - The bank's ability to maintain a stable ROTE of around 12% positions it well for potential valuation upside, even in a flat market environment [22][23]. Market Position - Crédit Agricole is one of the least sensitive banks in Europe to interest rate changes, which has allowed it to maintain stable profitability during varying interest rate environments [5][12]. - The bank's diverse revenue mix, including significant contributions from non-interest-based business lines, supports its resilience against interest rate fluctuations [12][14].