A sharper focus ahead
- 4Q23 EPS was at US$5.48 (+65% y-o-y), beating consensus of US$3.51, driven by stronger investment results and equities trading revenue
- Investment banking fees backlog increased q-o-q, mainly driven by significantly increase in M&A backlog
- We think the series of strategic actions in 2023 will position GS for a stronger rebound in 2024; maintain BUY with TP lifted US$440
Result beat driven by equity market tailwinds. 4Q23revenue exceeded consensus by 5%, as (1) asset and wealth management (AWM) revenue jumped 23% y-o-y amid stronger investment return especially from public equities, and (2) equities trading revenue jumped 26% y-o-y thanks to stronger derivatives activities and financing fees, largely offsetting the miss in FICC trading. While investment banking fees fell by 12% y-o-y amid industry’s slump, fee backlogs increased q-o-q mainly driven by M&A pipeline. OPEX was up 5% y-o-y mainly due to one-off regulatory charges. As a result, 4Q23 diluted EPS was at US$5.48, significantly above consensus of US$3.51. Annualised ROE was at 7.1%.
Set to rebound in 2024 with a more focused platform. We think the strategic execution in 2023 about trimming non-core businesses has been on track, by (1) reducing principal investment by US$13b, and (2) exiting GreenSky, PFM, Marcus lending and GM card partnership. On the other hand, it has (1) grown its core businesses with rising IB fee backlog and widening lead in equities trading, (2) grown its AWM fees and surpassed its alternatives fundraising goal (US$225b by 2024) one year early, and (3) narrowed losses in platform business and grown Marcus’ deposit balance to improve firmwide funding structure. We think these will smoothen the company’s earnings volatility ahead and re-focus on its strength. With top franchises in investment banking and equities, we think GS is set to benefit from the potential rate cut in 2024, which will likely lead to rebound in dealmaking and trading activities. Maintain BUY and lift TP to US$440, reflecting a brighter capital market outlook.