Tuesday, December 6

Banco Santander: the 25% discount is an opportunity


The irregular stock market performance of Banco Santander in recent months, especially since the omicron variant exploded, reduced the annual rise in the stock market to 15 percent. For analysts, the punishment received is an opportunity.

After the anxiety in the market calmed down due to the news about the lesser severity of the new strain, the securities of the Bank chaired by Ana Botín accelerated the comeback and have the psychological level of 3 euros in sight.

It is true that the battle for control of Merlin could put Banco Santander fundamentals in the background, especially if it dragged on. For this reason, the entity has been used thoroughly to convey a message of optimism and green shoots.

The results of the fourth quarter are strong and the better macroeconomic projections will allow to continue releasing provisions, as stressed Santander Bank in a recent meeting with analysts.

Very depressed valuation at Banco Santander

Aspects such as the cost of risk, the capital ratio or the prospects of the business monopolized the attention of this appointment.

Overall, “Banco Santander confirmed its expectations of maintaining a gradual improvement in ROTE, with sustained credit growth and solid activity,” explained Deutsche Bank analysts.

These projections that the bank put on the table have not had their fruit in the bag, which opens a window of entry.

“We believe that the performance of recent months shows Banco Santander trading at a very depressed valuation, which we see as an opportunity,” added Barclays analysts.

Specifically, the British bank’s economists calculated that the stock trades with a book value of 0.6 times and a discount on the sector of 25 percent.

The consensus of analysts at Finanzas.com also remains very optimistic and calculates a target price for the entity of 3.81 euros per share, which shows an upside margin of more than 31 percent.

Banco Santander foresees an optimistic outlook in 2022

Looking ahead to next year, the projections that the entity explained to analysts were optimistic. Loan volumes will grow between 2 and 3 percent and will be supported by “solid growth in customer acquisition,” they said at Barclays.

It is true that the costs will be somewhat higher than expected due to the effect of inflation. However, the bank will include in the results of this fourth quarter a release of provisions of between 700 and 800 million.

With this measure, the cost of risk for this year will be slightly below 80 basis points. And in 2022 it will normalize to around 90 points.

Likewise, it sounded very good to the experts that the CET1 capital ratio is going to be above 12 percent in all quarters of next year, according to the projections that the entity revealed.

“We consider it positive” that the bank is forecasting this ratio, as well as that “it is not considering mergers and acquisitions”, next year, they argued in Barclays.

Taken together, the 2022 guidelines “provide some reassurance that there should be few surprises, following the bank’s recent improvement trajectory,” they added at Deutsche Bank.

Focus on the UK in the outlook by regions

Despite this upbeat outlook, analysts also spotted some reasons for concern.

“The UK is probably the main negative surprise, as the bank expects some more difficulties due to lower revenues,” explained Deutsche Bank analysts.

The experts interpreted that the reason for this greater caution is probably due to an interest margin that will remain flat and a decrease in commissions.

On the contrary, the market that was most favored in the photo from regional perspectives was Spanish. “It will become one of the main drivers of growth in 2022,” they noted at Barclays.

It is true that income in Spain will remain flat, but costs will fall between 7 and 8 percent and the cost of risk will reach 50 basis points in 2022, half that this year.

In the United States there will be a significant change in future management, which will be oriented towards the integration of the different businesses. With this, the bank expects to achieve a RoTE of 15 percent in two to three years.

But in this market, the extraordinary elements that have been seen in 2021 will not be repeated, with which the cost of risk will normalize around 200 basis points.



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