What is the stock?
ING Groep
How long have you held the stock?
Since February 2016
What do you like about it?
ING Groep is a streamlined leader in Northern European banking that offers multiple ways of winning. The oligopolistic nature of the bank’s core markets (Belgium and Netherlands) provide protection against falling interest rates in tandem with higher levels of profitability. Half of the loan book is exposed to credit growth from Northern European economies reflating under high savings rates and low yields. As a pioneer of online banking, ING continues to capture market share. In fact, it’s now Australia’s sixth-largest banking franchise – ahead of Suncorp and Bendigo Bank – all without opening a single branch! Finally, higher interest rates will benefit all banks and we currently earn a 6.5% dividend yield.
How is it better than its competitors?
Most banks will claim they have a superior online offering but ING is the real deal. Despite strong incumbents, ING has built efficient and valuable franchises in new territories, such as Germany and Australia, via its digital distribution. In a low growth banking environment hindered by regulation, ING’s service and cost advantage enables it to grow profitably and with lower risk.
What do you like about its management?
CEO Ralph Hammers has worked with ING Groep since 1991, running several regional business units including Netherlands, Belgium, Luxembourg and Romania. His overall understanding of the ING business and its digital competitive advantage is impressive.
What is your target price on the company?
15 euro per share (currently 12.63)
At what point would you sell it?
ING is a cyclical opportunity within an industry in shakeout. We look to sell into the recovery phase – Europe still lags North America, United Kingdom and Australia.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
As at 30 November 2016, ING Groep has returned ~30% in local currency terms since entering the portfolio.
Is it a liquid stock?
Yes, it trades $320 million Australian dollars per day.
Where do you see the value?
The one constant in global markets is change and since the Global Financial Crisis, the financial sector has faced no shortage of challenges with many banks stuck in a quagmire of poor regulatory and operating conditions. In addition, banks have suffered margin pressure from low interest rates and social pressure from populist politics – particularly in Europe. Therefore, markets have shunned and discounted the sector down to attractive buying levels, particularly ING. Value resides in its robust balance sheet, improving profitability by focusing on digital banking and Northern Europe, all whilst paying a sustainable 6.5% dividend yield.
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