A defensive idea to deal volatility

Despite the rise in yields and the widening of the spread curve that have raised further questions about the risks to Italian Banks, there is reason to remain optimistic about Unicredit and Intesa San Paolo. In fact, Unicredit has been working since March to reduce its exposure to Russia. CET1 for the first quarter of 2012 was 14.0 percent, including 70 percent of the aforementioned maximum capital impact scenario related to Russia. Assuming the full capital impact of this scenario, management indicated that CET1 would have been 13.6 percent (compared to the target of 12.5-13 percent). Currently, the bank is managing its exposure to Russia, evaluating all options at a reasonable cost. 

The bank has indicated that it does not need to support the Russian local filial from a capital standpoint, as the branch's capital position is strong, with all third-party derivatives closed and intra-group exposure fully secured. UNICREDIT has a strong buy reco from analysts (57.14%), and analysts give the stock a 12-month target price of €14.51 (up 66% from current price)*. Intesa's management has established a high fee/low cost bank, which limits its sensitivity to BTP rates, given the relatively low share of net interest income in revenues and the high starting point of profitability. However, with €0.5 billion in customer deposits and short-term rates (EURIBOR 12m) up 70 bps year-on-year, we can expect net interest income to exceed corporate targets and consensus expectations, leading to positive revisions in revenues and earnings. We can expect Intesa to sustain the improvement in asset quality it has been holding in recent years: since 2013, NPLs have fallen from 30 billion euros to 7 billion euros. INTESA has a strong buy recommendation from analysts (63.16 percent), and analysts give the stock a 12-month target price of €2.62 (up 57 percent from the current price)*. As for Enel, the Italian government presented in March a decree aimed at countering rising energy prices with measures amounting to about €4.5 billion. In 2021, the company made great strides in developing renewable energy.

However, this came at a cost and net debt increased by 14.4 percent, while EBITDA guidance was lowered. The current earnings multiple combined with the high dividend yield makes this company a suitable investment in times of high inflation. At Capital Markets Day in November 2021, Enel unveiled a strategic plan for decarbonized electricity supply to meet customer energy demand. In line with the strategy, the company is extensively investing in the Green Power and Infrastructure & Networks business lines. In addition, in 2021 Enel has demonstrated the ability to significantly reduce the cost of developing renewable sources. ENEL has a strong buy reco. from analysts (72 percent), and analysts give the stock a 12-month target price of €8.19 (up 67 percent from current price)*.