Italian Equity Market: Third Quarter 2023 Results – Scaling Down Another Gear

The Q3 reporting season saw a further slowdown in terms of positive surprises, registering a new low, following the sharp slowdown already observed last quarter: 'Above expectations' announcements fell to 37% (vs. 41% last quarter), 52% in line and 11% Below in our preview sample made of 89 companies; this is the lowest level of positive surprises we have recorded since Q1 2020, the first results season during the pandemic.

Once again, Non-Financials led the downturn: declining volumes in the face of weaker domestic demand, reduced inventories, and a negative exchange rate factor; on the positive side, we saw still positive pricing and stability in debt levels. Financials still benefited from net interest income, although its growth is losing momentum, and a lower cost of risk, which more than offset weaker fee income.

Guidance on 2023 was reassuring overall (46% improved, 41% confirmed, in our sample), but investors are now mainly driven by the 2024 outlook, which still seems uncertain to us. We believe that Non-Financials will try to protect margins with 'value over volumes' strategies, in a context of weaker demand and lower pricing power. For Financials, net interest income is expected to reach a cyclical peak, with still softer fee income.

SOURCE Intesa Sanpaolo Research elaborations