Alpha Bank — Full steam ahead

Alpha Bank (ALPHA.AT)

Last close As at 24/04/2024

EUR1.63

−0.04 (−2.40%)

Market capitalisation

EUR3,829m

More on this equity

Research: Financials

Alpha Bank — Full steam ahead

Alpha Bank (Alpha) reported €611m in net profit, a 66% jump from FY22, as the bank benefited from an elevated interest rate environment with little impact from deposit migration and strong cost control. Alpha delivered a normalised return on tangible equity (RoTE) of 12.9% in FY23, beating its own upgraded target of >11.5%. The increased profitability coupled with a robust capital position (fully loaded common equity tier 1 (FL CET1) of 14.3%) have enabled a proposed dividend of €0.05 a share, subject to regulatory approval.

Written by

Robert Murphy

Managing Director, Financials and Investment Trusts

Financials

Alpha Bank

Full steam ahead

Banking

Spotlight - Update

28 March 2024

Price

€1.65

Market cap

€3.88bn

Share price graph

Share details

Code

ALPHA

Listing

ATH

Shares in issue

2.35bn

FL CET1

14.3%

Business description

Founded in 1879, Alpha Bank is the one of the largest Greek banks with assets totalling €74bn in FY23. Aside from Greece, the bank has operations in Cyprus, Romania, Luxembourg and the United Kingdom, providing an array of financial services including retail and corporate banking, life insurance, investment services and real estate management.

Bull

Greek economy is strong with debt/GDP ratio reducing and GDP growth surpassing EU average.

UniCredit partnership enables the creation and distribution of more competitive products.

Strong capital generation plan with an intent to return capital to shareholders.

Bear

NPE ratio is still high relative to the banking industry.

Risk is centralised in Greece since it has a small international presence.

Athens Stock Exchange is less liquid than other exchanges.

Analysts

Rob Murphy

+44 (0) 7900 484 805

Armando Hoxha

+44 (0) 203 0775 725

Alpha Bank is a research client of Edison Investment Research Limited

Alpha Bank (Alpha) reported €611m in net profit, a 66% jump from FY22, as the bank benefited from an elevated interest rate environment with little impact from deposit migration and strong cost control. Alpha delivered a normalised return on tangible equity (RoTE) of 12.9% in FY23, beating its own upgraded target of >11.5%. The increased profitability coupled with a robust capital position (fully loaded common equity tier 1 (FL CET1) of 14.3%) have enabled a proposed dividend of €0.05 a share, subject to regulatory approval.

Consensus estimates

Year
end

Core banking income (€m)

PBT
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/22

1,772

632

0.16

0.00

10.3

N/A

12/23

2,026

977

0.25

0.05

6.6

3.0

12/24e

2,066

1,030

0.30

0.08

5.5

4.8

12/25e

2,055

1,035

0.30

0.10

5.5

6.1

Source: LSEG. Note: *EPS is basic statutory. Priced at 28 March 2024.

Higher rates and cost control boosted profitability

Alpha was a beneficiary of the European Central Bank’s sequential interest rate increases in 2023, with net interest income (NII) rising 41% y-o-y to €1.65bn. In particular, the bank exhibited a strong performance in its securities portfolio, which should help lock in NII going forward. Operating costs fell 4.6%, leading to a 15pp fall in the recurring cost-to-income ratio (CiR) to 39.5%. Cost of risk was 82bp, in line with company guidance, as the bank continues to benefit from a strengthened and growing economy. PBT was subsequently 55% higher than FY22 at €976.5m. After taxes, and accounting for a €86.2m deduction from non-performing asset (NPA) transactions, the bank delivered €611m in net profit, 66% higher than the €368m reported in FY22.

Strengthened balance sheet and capital efficiency

The merger of its Romanian subsidiary with UniCredit, which resulted in Alpha Bank receiving €300m and retaining a 9.9% stake in the combined entity, along with the disposal of non-performing exposures (NPEs), significantly enhanced the bank’s capital efficiency. As a result, Alpha was able to deliver a normalised RoTE of 12.9%, above its upgraded guidance of >11.5%. With an FL CET1 of 14.3%, the bank is adequately positioned for growth and is well-placed to return capital to shareholders. In its investor call, management declared that it aims to return 25% of its current market cap by 2025.

Valuation: Discount to peers

Based on consensus FY4e P/E (5.4x) and price to tangible net asset value (TNAV) (0.55x), Alpha Bank trades at a 5% discount and 28% discount, respectively, to relevant peers. Should Alpha Bank achieve its medium-term RoTE targets, we would expect it to trade closer to TNAV.

Profits climb 66% year-on-year

Alpha Bank had a strong year, delivering €2.1bn in operating income, CiR of 39.5%, normalised RoTE of 12.9% and EPS of €0.32 (see Exhibit 1). The bank exceeded the 12% profitability target that it had set to achieve in 2025 and, including the UniCredit deal, delivered c 60% of the three-year capital generation target.

Q423 was affected by NPE transactions, which resulted in lower NPEs and better capital than expected. Before NPE transactions, Q423 PBT was 8% ahead of consensus at €276m. Additionally, normalised profit after tax in Q423 was 30% ahead of consensus at €216m. As a result of the NPE transactions, FY23 results fell slightly short of consensus expectations, with net profit of €611m against consensus estimates of €639m.

NII growth slowed in Q423, increasing only 1% q-o-q, but climbed 41% y-o-y to €1.65bn as the bank benefited from higher interest rates, larger loan volumes and a significant contribution from its securities portfolio. Hence, its net interest margin increased 60bp y-o-y to 2.2%.

The benefits of higher interest rates were somewhat offset by an increase in deposit costs. These appreciated ninefold to €573m (FY22: €64m) on deposit balances of €48bn, slightly lower than €51bn in FY22 (due to disposals). The average cost of deposits rose from 0.1% in FY22 to 1.2% in FY23.

Staff costs rose 2% to €333m, primarily due higher salaries and the implementation of the bank’s Collective Labour Agreement, which came into effect on 1 December 2022, as well as the cost of new stock awards. General and administrative costs fell 15% to €327m (FY22: €386m), mainly attributable to the disposal of the merchant acquiring business in Q222 and lower contributions to the Single Resolution Fund. Depreciation and amortisation rose 10% to €157m, as software was capitalised at the beginning of the year and new leases were recognised as right of use assets. Thus, total operating expenses dropped 5% to €817m.

Consequently, pre-provision income was €1.29bn, rising 42% from €907m in FY22. Impairments increased 6% to €308m, in line with guidance, but we note that in Q423 cost of risk jumped to 96bp compared to the Q1–Q423 average of 75bp. This was due to the cost of some securitisations and management action that saw the coverage ratio rise to 45% from 41% in Q3. Alpha improved its NPE ratio by 180bp y-o-y to 6%, helped by the reclassification of Project Gaia, a €0.5bn mortgage NPA portfolio, to held-for-sale and other transactions that helped offload the NPEs from the bank’s balance sheet.

As a result, PBT was €976.5m, up 55% from FY22. Income taxes of €279m (FY22: €207m) drew profits after tax down to €698m, a 64% increase from FY22. Accounting for the impact of NPA transactions, from discontinued operations and other adjustments, of negative €86m (FY22: negative €57m), profit attributable to shareholders was €611m, a 66% uplift from €368m in FY22.

Normalised EPS was €0.32. Basic EPS was €0.25, up 61% on FY22. On the back of the strong results, the bank also announced a dividend of €0.05 a share, subject to regulatory approval, resuming its dividend payment for the first time since 15 April 2008. The bank expects to hear from the regulator by Q224.

Exhibit 1: Profit and loss account

€m unless stated otherwise

FY21

FY22

FY23

Y-o-y %

Net Interest Income

1,375.9

1,173.8

1,653.5

40.9%

Net fee &commission income

395.6

367.1

372.5

1.5%

Core banking income

1,771.5

1,540.9

2,025.9

31.5%

Income from financial operations

142.6

189.9

39.5

(79.2%)

Other income

31.6

33.4

43.2

29.3%

Operating Income

1,945.7

1,764.1

2,108.6

19.5%

Core Operating Income

1,803.1

1,574.3

2,069.1

31.4%

Staff Costs

(403.0)

(328.2)

(333.3)

1.6%

General Administrative Expenses

(448.4)

(386.4)

(326.7)

(15.5%)

Depreciation & Amortisation

(157.1)

(142.7)

(157.4)

10.3%

Recurring Operating Expenses

(1,008.5)

(857.2)

(817.5)

(4.6%)

Excluded Items

(194.8)

0.5

0.4

(20.0%)

Total Operating Expenses

(1,203.3)

(856.7)

(817.1)

(4.6%)

Core Pre-Provision Income

794.6

717.0

1,251.7

74.6%

Pre-Provision Income

742.4

907.4

1,291.6

42.4%

Impairment Losses on Loans

(373.5)

(291.4)

(308.3)

5.8%

Other items

(21.0)

15.5

(6.7)

(143.2%)

Profit/(Loss) Before Income Tax

347.9

631.5

976.5

54.7%

Income Tax

(50.8)

(206.7)

(279.0)

35.0%

Profit/(Loss) after income tax

297.1

424.9

697.5

64.2%

Impact from NPA transactions discontinued operations and other adjustments

(3,203.1)

(56.5)

(86.2)

52.6%

Profit/(Loss) After Income Tax

(2,906.1)

368.4

611.3

66.0%

Key metrics

Net interest margin (%)

1.9

1.6

2.2

Cost-to-income ratio (recurring expenses, %)

55.9

54.5

39.5

CET1 ratio (%)

13.2

11.9

14.3

Total capital ratio (%)

16.1

14.9

18.6

Loan to deposit ratio (%)

78

76

75

Total assets

73,356

78,011

73,663

Net loans

36,860

38,748

36,161

Securities

10,645

13,474

16,052

Deposits

46,970

50,761

48,449

Shareholder's equity

6,036

6,245

6,905

Tangible book value

5,558

5,770

6,438

NPL ratio (%)

6.2

4.1

3.1

NPE ratio (%)

13.1

7.8

6.0

Source: Alpha Bank

Divisional review

Alpha Bank has four key commercial drivers: Retail, Wealth, Wholesale and International.

Retail: Alpha aims to completely digitise its everyday banking requirements, allowing employees to focus on more important, higher-value tasks. In FY23, Alpha launched a new service model to over 80% of its branch network and launched its Priority Relationship Manager service to both the Emerging Affluent Personal and Retail Business Banking segments, serving over 500k clients. Concurrently, it launched the MyAlpha Advisor platform for its Business Relationship Managers. Additionally, in 2023, the bank enhanced its digital offering, including payroll account opening and digital credit card sales, and introduced its subscription bundle offering.

Higher interest rates, supported by the initiatives above, increased Retail revenues by 41% y-o-y to €770m, while concurrently reducing its CiR by 26pp to 51%.

Wealth: Revenues appreciated 16% y-o-y to €106m as the division benefited from higher asset management balances, growing 49% y-oy to €16bn. Key to driving growth was the focus on cross-selling into its retail client business. In FY23, retail clients accounted for 25% of total inflows into Alpha Bank’s Greek non-money market mutual funds.

The bank expanded its offering during the year, launching eight new investment products that attracted €1.3bn in AUM into its mutual funds (capturing 30% of market share). It also added two ESG mutual funds via a third-party and secured regulatory approval for its Alternative Investment Fund Management licence extension. It also launched its e-Wealth services to Private and most Gold clients, automating the acceptance of investment orders and online orders of mutual funds.

Alpha Bank intends to introduce new, competitive offerings through its partnership with UniCredit. Management is confident the wealth business is adequately positioned to capture fees as clients reposition their savings once rates begin to decline.

Wholesale: Wholesale delivered strong year-on-year revenue growth of 19% to €880m, benefiting from a slightly higher net loan balance (€19bn in FY23 compared to €18bn in FY22) and the launch of new digital products. Alpha Bank is also working in close partnership with UniCredit’s Trade Finance team and in wholesale issuance to deliver a more competitive offering. The bank continues to leverage its position within the Greek market with the aim of procuring more business and improving profitability.

International: Revenues catapulted 83% to €152m, while CiR fell 33pp to 45% as the bank benefited from elevated rates and loan book growth of 7.5% y-o-y. The transaction with UniCredit elevated its Romanian subsidiary from the 13th largest bank in the nation to the third largest. Alpha’s 9.9% retention in the new entity will allow it to benefit from the scale of the bank, realising the value of the bank upfront while limiting risk associated with the investment. This will allow the bank to significantly improve its return on capital due to the impact on capital ratios.

Meanwhile, in Cyprus, a new leadership team has taken the helm and the bank has provided additional resourcing to grow the wholesale loan book, establish a presence with high-net-worth individuals, institutional and private clients, and achieve growth in mortgages in the teens.

Revisiting key events in 2023

Alpha Bank returned to 100% private ownership after UniCredit’s 9% stake purchase. On 13 November 2023, UniCredit, an Italian international banking group with a market capitalisation of €59bn (at the time of writing), purchased 8.9781% of Alpha Bank directly from the Hellenic Stability Financial Stability Fund (HFSF). The HFSF was founded in 2010 as a state-owned enterprise to ‘contribute to the maintenance and stability of the Greek banking system’. UniCredit’s purchase marked the first investment made by a significant European banking group in a Greek bank in 17 years.

Merger of Alpha Bank’s and UniCredit’s Romanian subsidiaries created the third-largest bank in Romania. As a result of the merger, Alpha Bank received €300m in cash and retained a 9.9% stake in the combined entity. It expects to earn between €35m and €40m in associated income in FY25 and FY26. The deal has also opened the doors to other partnerships such as commercial cooperation, via a joint venture, distribution of portfolio management and life insurance products.

Greece returned to investment grade. Both S&P and Fitch upgraded Greece to BBB- from BB+ in the final quarter of 2023. The upgrade concluded a 13-year exclusion from investment grade status. The ratings improvement was underpinned by lowering debt/GDP, an acceptable debt-servicing structure, a stable political environment and a favourable outlook.

Outlook: Previous medium-term guidance lifted

In its investor day presentation in June 2023, Alpha Bank targeted an RoTE above 12% by 2025 (see Exhibit 2). A strong performance in FY23, underpinned by an improving economy and a balance sheet overhaul, has enabled the bank to upgrade its target to c 13.5% in FY25 and it aims to deliver above 14% in FY26 (see Exhibit 3).

Exhibit 2: 2023–25 targets

Source: Alpha Bank’s investor day presentation in June 2023.

Alpha Bank did well to reduce its CiR to 39.5% in FY23 and plans to reduce the metric to c 37% by 2026, down from its previous target of c 40%. In FY23, it reduced contributions to the Single Resolution Fund and completed the Project Sky and Skyline transactions. The bank continues to drive towards network digitalisation and lower its legacy capital expenditure costs. However, Alpha will face some headwinds, including c €460m of planned investments into IT and business development in Cyprus, alongside general wage inflation and performance rewards.

The bank also slightly raised its FL CET1 ratio by 50bp to c 16.5bp, as the group focuses on generating capital. The bank’s growing capital base gives it the opportunity to return capital to shareholders. In the earnings call, management stated that it wants to pay out 25% of its current market capitalisation, either in buybacks or dividends, by 2025, contingent on the bank meeting specific shareholder value targets alongside regulatory approvals. Increased capital would also allow the bank to explore inorganic opportunities.

Exhibit 3: Updated 2024–26 targets

Source: Alpha Bank’s Q423 results presentation

How will Alpha Bank grow its revenues as rates decline?

Growing its revenue, alongside managing costs, is the key determinant of Alpha increasing its profitability and achieving its targets. Alpha projects interest rates to descend from current levels, subsequently expecting its NII to drop 5% in FY24. However, it expects to grow its NII in FY25 and FY26 beyond FY24 levels despite a lower rate environment.

In FY24, the bank assumes an average Euribor of 3.5% and a gradually increasing deposit beta. Alpha expects the deposit beta to appreciate from 15% in 2023 to 27% by 2025. It expects deposits to grow 4% y-o-y in FY24. It also anticipates more of these deposits to be in the form of time deposits. Hence, with older deposits repricing to higher rates, and new deposits earning interest at those same rates, the bank expects NII to decline by 5%. This will be partially offset by higher loan balances and securities book growth.

Moving into FY25, the bank expects to recoup the shortfall and go beyond FY24 NII by 5% as deposits eventually reprice lower as rates fall, and simultaneously, its loan volume and average balances increase. Additionally, Alpha expects positive contributions from its structural hedge (see below), coming in the form of securities, loans or receivable swaps. The bank expects a similar scenario to prevail in FY26, where Euribor will stabilise, and the bank will depend on increasing loan volumes and its structural hedge to offset a higher deposit beta and growing deposits.

Exhibit 4: Net interest income projections

Source: Alpha Bank’s Q423 results presentation

Other revenue drivers

Securities portfolio. Alpha Bank has been growing its securities portfolio, taking advantage of higher rates and investing in higher yielding products. The bank still has room for growth and has guided to an additional c €2bn in securities in FY24. Furthermore, it has €4.5bn of reinvestments occurring during 2024–26, with the bank expecting yields to pick up by a minimum of 1%. A larger securities book and increasing yield on that book should pave the way for increased contributions from the portfolio.

Net fee and commission income. The bank expects net fee and commission income to grow from €0.37bn in FY23 to c €0.47bn by FY26, implying a 10% CAGR. Underpinning its growth assumptions are the bank’s conviction of attracting higher balances in asset management; improving investment penetration, particularly in the retail segment; utilising its partnerships with UniCredit and Generali to drive bancassurance income growth; and introducing new products and digital investments that will enhance its offering within cards, payments and other transaction banking products.


General disclaimer and copyright

This report has been commissioned by Alpha Bank and prepared and issued by Edison, in consideration of a fee payable by Alpha Bank. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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London │ New York │ Frankfurt

20 Red Lion Street

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Alpha Bank and prepared and issued by Edison, in consideration of a fee payable by Alpha Bank. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Research: Consumer

Dalata Hotel — A strong hand

Dalata’s FY23 deployment of €156m in high-profile hotel opportunities in London, Amsterdam and Edinburgh as well as the newly announced proposed redevelopment at Manchester Airport show the scale and nature of its accelerating growth strategy, enabled by ‘considerable firepower’ (FY23 net debt to EBITDA after rent of just 1.3x). While the focus on cities in the UK and Continental Europe with favourable dynamics, for example London, is self-evidently appealing, there is reassurance in the success of 2022 openings in the UK and a capital-light approach on the Continent. Dalata’s trading agility (like-for-like FY23 EBITDAR margin in line with 2019 despite high cost inflation) and maturing estate (H223 adjusted EBITDA up 20%) bode well for 2024 after a market-led slow start in Dublin.

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