Overview: Deutsche Bank AG (ETR:DBK) is a German global banking and financial services company, headquartered in Frankfurt, Germany. Deutsche Bank is listed in Germany and the U.S. It is publicly traded on XETRA, the electronic trading system for securities-based in Frankfurt, Germany, under the ticker code DBK. The ticker code for the NYSE is NYSE:DB.
Catalysts: Recent management changes, as well as an improved corporate activity during the first half of 2015, have brightened the outlook. Deutsche Bank recently announced a write-off of €5.8 billion of goodwill, which will result in a loss of more than €6bn for Q3. The impairment charges along with job cuts are part of management’s strategy to lower capital expenditure and boost earnings. Historically when balance sheets are cleared up, return on equity tends to improve. A falling EUR currency should benefit its international operations.
Hurdles: Deutsche Bank has underperformed its peer’s post GFC due to poor balance sheet management, high spending, and lower profit margins. The company has failed to establish a common identity and needs to control capital expenditure, but there is no guarantee that Deutsche Bank’s strategic review will yield economic benefits. Dividend payments are expected to be cut for FY15.
Investment View: Deutsche Bank AG is trading at a historically low valuation and offers speculative exposure to a turnaround in one of the world’s leading investment banks. Whilst impairment charges will weigh on FY15 results, lower spending and a simpler balance sheet are expected to boost its return on equity. With a new management team in place, we initiate coverage with a ‘speculative buy’ recommendation. Our 12-month price target is € 31.50.
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