BNP Paribas trade idea

I like the fact that French bank BNP Paribas have held up quite well despite European equity markets getting sold off of late.

BNP Paribas
Source: Bloomberg

This suggests if we see an upturn in sentiment then it will be on traders buy lists before many other companies.

Valuation-wise, the stock now trades on a price-to-earnings ratio of 9x, down from around 12x prior to the recent sell-off and a 20% discount to the European banking sector. For that consensus estimates for 2016 suggest we see 20% earnings growth and 10% sales growth. Also the market expects a 36% decline in net debt and good free cash generation.

I like the fact that we could also see the ECB add to its QE program later this year, which would directly positively impact the European banks as the extra liquidity would go straight onto their balance sheet.

So I like the valuation, growth and cost story and there is a favourable macro story as well (ECB bond buying). I would be looking for a move into €60, but in case the CAC continued to attract sellers would exit on a move through €50 and the July low.

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