Tuesday, December 7

Morgan Stanley takes the scissors out of Banco Santander and raises BBVA

Morgan Stanley has lowered its recommendation on Santander Bank to “same as market”, which translates as “neutral”, with a cut in the 12-month target price of 5 percent, to 3.80 euros. The valuation was below the average, located at 3.89 euros.

For the analyst of the US entity Alvaro Serrano, the group chaired by Ana Botín is still “cheap”, but “It may have become a value trap in the absence of future catalysts”.

In the opinion of this expert, the consensus is not taking risks as the political framework of Brazil, the pressure on margins in Spain and the possible lower income in the USA, geography that has now become the engine of the bank.

However, the current average target price, induced by valuation improvements by investment entities after the publication of results, places Banco Santander at the highs of July 2019.

Morgan improves BBVA’s price by 12 percent

Despite this, experts pointed out that, although operational performance is solid, doubts were raised regarding the growth in commissions, costs and the CET 1 “fully loaded” capital ratio. This ratio is within the target range of 11-12 percent, but it could be too conservative a figure.

On the other hand, the US entity has raised its valuation over BBVA until “overweight” with an improvement in the target price of 12 percent, to 7.30 euros, above the average price of the consensus that sees the bank at 6.51 euros for one year.

Morgan Stanley considers that BBVA now offers better visibility into net income thanks to the interest generated in Mexico and the cost reduction plan in Spain, in addition to recovering ground in the loan market with a strong boost from commissions.

The ROTE would reach 10 percent in BBVA

This situation would lead BBVA to growth in operating profit of 3 percent for the period 2021-2024, yet 10 percent profitability measured through ROTE ya a r4.6 percent dividend yield.

The bank led by Carlos Torres also received an avalanche of price target improvements following the release of results that allow the entity to accelerate the share buyback after a great response from emerging markets.

Both Banco Santander and BBVA saw improvements in several of the metrics most followed by investors thanks to the results, and both entities are placed with the best earnings per share in the sector on the IBEX 35.


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