Friday, November 26

Banco Sabadell: dividend and strategic plan to compensate for the BBVA sit-in

The bid presented by BBVA for the entirety of its Turkish subsidiary Garanti ruined a possible merger of the entity with Sabadell Bank.

The operation was parked but the market was still discounting it, as evidenced by the 4 percent falls in the Catalan entity, financial sources explain.

In fact, it is one of the bullish levers that have placed Sabadell Bank as the best value of the year on the IBEX 35, with a rebound of 84 percent.

Now the bank he runs César González-Bueno It will have to concentrate on meeting the objectives of the strategic plan and being able to increase pay out, in order to align shareholder remuneration with its historical average.

Increasing profitability, a priority for Banco Sabadell

The objective of the strategic plan is to recover profitability, improving revenues and reducing costs. With expenses under control, after implementing an efficiency plan in Spain to save € 130 million, the improvement in income will be essential.

“The priority is to offset the headwinds for net interest income,” they told on Bloomberg Intelligence.

Loan growth, rebuilding the investment portfolio, reducing wholesale financing costs and a larger contribution from TSB will be important catalysts.

According to the calculations of Nuria Alvarez, an analyst at Renta 4 Banco, the interest margin will grow at an accumulated rate of 1.5 percent between the period 2020-2023. Again, the key will be the support of volumes, mainly in TSB and the “management of prices in Spain”, said this expert.

Lower cost of risk to drive net profit

Another element that will support the recovery of profitability will be the normalization of provisions, after the extraordinary provisions to face the pandemic.

In this way, the cost of risk will fall this year to 65 basis points, compared to the 86 points at which it closed last year. And it will continue on the downward path to place in 2023 at 51 points.

It is “a moderation that will act as a key element for the recovery of net profit,” he said. Alvarez.

Boost to credibility

With net interest income recovering and the cost of risk falling, the bank will steer towards profitability, which will also be boosted by the restructuring plan and capacity adjustment.

The feeling among analysts after the presentation of the third quarter results is that the bank is evolving in the right direction to comply with the strategic plan, although there will be obstacles either.

“It continues to meet short-term objectives while gaining credibility to move closer to the long term,” said analysts at Deutsche Bank.

The dividend, on target

What’s more, the sources consulted insist that there are still potential catalysts on the horizon that could further improve the entity’s prospects. For example, the more than likely recovery of the Euribor if interest rate expectations are adjusted upward.

All these improvements will benefit the shareholders by boosting the dividend, which the entity has just recovered in the form of cash. Thus, the bank assumed in its strategic plan a pay out of 30 percent, which is somewhat below its historical average, between 40 and 50 percent.

There is scope to climb this fork. This is a range that “could be achieved in a context of exceeding the objectives of the strategic plan,” they explained in Rent 4 Bank

On Deutsche Bank they also think that this is the right course. “Taking into account the improvements made in the quality of the assets and a better contribution than expected from TSB thanks to the improvement of the environment, we expect a gradual recovery of the benefits,” these experts emphasized.

Sabadell, in the support area

After the recent falls that followed the news of Garantí, the price of Banco Sabadell corrected to 0.65 euros. As explained Daría García, XTB analyst, the stock “is in the support zone and has not lost any relevant level.”

In fact, the stock could still fall to 0.57 euros, where it would find the support of the 50 session average.

Above, the bullish objective if the price resumed the advances is at 0.8 euros, as explained by García. That is where the most relevant resistance could be.

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