In the year or so since I last wrote on Société Générale (OTCPK:SCGLY) ("SocGen") sentiment has most definitely shifted. The stock is almost double where it was before, as are sell-side price targets, and analysts seem a lot more bullish about management's ability to finally hit its cost reduction and return improvement targets.
As I said in that last piece, SocGen was trading on very very low expectations, and it hasn't taken a particularly large swing in terms of long-term ROE outlook to drive these higher fair values. And to be fair to management, there has been progress on business improvement initiatives in at least some businesses. Still, this is a company with a lot of work still in front of it and it seems unlikely that rates will be a big near-term help.
I do believe that SocGen is undervalued, and I believe any "going concern" risk is gone. What remains, though, are some very real questions about whether management can improve the business enough to ever get ROEs back above the cost of equity capital, and whether they are prepared to make some hard choices to get out of chronically-underperforming businesses. I'm more bullish than I've been in a while, and it only takes around 4% long-term growth off the not-so-impressive base of 2019 earnings to drive double-digit return potential here.
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