Sabadell 2Q18 results preview: A quarter to forget
Net profit to amount to €28mn in 2Q18e.
Sabadell will release its 2Q18 results on Friday, July 27th. A webcast will be held at 10.0 am, available on the following link: https://www.grupbancsbadell.com/en/.
We estimate that the net group profit may amount to €28mn. This figure is below the market consensus (€80mn) because we have booked €60mn for future TSB contingencies while the consensus provided by the bank only includes €16mn.
The negatives: TSB, Italian bonds & Sareb
The results will be negatively impact by three events: (a) the IT problem at TSB, (b) the sale of the Italian bond portfolio, and (c) the additional provisions for the Sareb’s stake after the new strategic plan. TSB’s IT failure is the most relevant both for this quarter results and for the future. The incurred loss in 2Q18 may amount to GBP 70mn, including the revenues lost, the cost of frauds and the increase in costs to reinforce the commercial push. The bank may also book further provisions for future costs that we have estimated at €60mn. The sale of the Italian bond portfolio, although partially offset by other sales, should lead to a lower than average trading income and a lower net interest income (estimated at €10mn per quarter) for the future. Sareb’s stake provisions should be increased to 65%–73 %.
The sale of the real estate assets
Sabadell agreed to sell to Cerberus an 80% stake of the vehicles that will hold its real estate assets, which have a gross value of €9.1bn and a net value of €3.9bn. Further €92mn provisions are needed. The transaction will have a positive impact on CET 1 of c. 13bp. This deal should solve some of the asset quality concerns and may lead to a reduction of the provisioning needs in the forthcoming years.
Target price revised to €1.68
We have revised downwards both our earnings estimates and our December 2018e target price. Our 2018e net group profit has been cut by –28.1% to include the aforementioned impacts while 2019e and 2020e earnings have also been reduced by –10.5% and –7.6%, respectively, due mainly to a lower TSB contribution. Our new target price of €1.68 includes both these cuts and a 1% higher risk premium due to the uncertainty regarding the profitability of the TSB franchise. Although we believe most of this damage is already discounted by the market, the current upside may not be enough for the risk of a new bank levy. Downgraded to Hold.
Banco de Sabadell is a bank holding company. Through its subsidiaries, Co. provides a range of banking and financial services in Spain and internationally. Co.'s activities include investment banking, private banking, portfolio management, mortgage loans, commercial loans and other financial products and services, deposits and international banking operations. Co. is also engaged in life insurance underwriting and brokerage. Additionally, Co. is engaged in capital property and development, as well as investing in environmental projects. As of Dec 31 2014, Co. had total assets of Euro163,345,673,000 and total customer deposits of Euro98,208,370,000.
Bankinter S.A. is a Spanish brokerage firm established in 1989. The company's line of business includes the provision of market research and trading services for Equity and Fixed Income products.
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