Sabadell: 3Q18 results preview: Feeling the British pain
Net profit to amount to €144mn in 3Q18e.
Sabadell will release its 3Q18 results on Friday, October 26th. A webcast will be held at 9.00 am, available on the following link: /en/.
We estimate that the net group profit may amount to €144mn. This figure is above the market consensus (€74mn) because we have booked €65mn for TSB’s extra–costs (€81mn in the consensus) and our tax rate is 28% vs. 40% in the consensus. Net interest revenue may decline –3.6% yoy, to €907mn, fees may increase +5.7% yoy, to €319mn, and gross income may decline –17.4%, to 1,271mn. Costs may rise +9.1% to €840mn due to TSB’s IT problems leading to pre–provision profit of €431mn (–44.0% yoy).
TSB penalising results once again
The domestic business is experiencing a positive evolution in revenues, costs and cost of risk after the clean–up implemented in the prior quarter that affected mainly the foreclosed assets and the stake in Sareb. Trading income would be the weakest line of the domestic earnings. However, the results from the British TSB will penalise the overall performance due to the increase in the accounts remuneration to maintain the clients and the additional costs incurred to cope with all the claims related to the IT problems. Our main concern regarding this issue is whether the authorities will put a fine or not and the amount of such a fine.
The impact of the tax sentence
Although we are still expecting the Supreme Court final decision and there are many unknows related to the retroactivity, if the retroactivity is finally fixed in 4 years and the change in the taxpayers only affects residential mortgages and not all mortgages, the impact could be €135mn (1.9% of market cap). Including all mortgages, the impact may increase to €290mn (4.1% of market cap) according to our forecasts.
Target value Dec. 2019e: €1.76 per share
We have rolled forward our target value to Dec. 2019, increasing it to €1.76 per share from €1.67 per share. Our new target price maintains a 1% extra risk premium due to the uncertainty regarding the profitability of the TSB franchise but has not deducted the aforementioned impact from the tax changes. Hold unchanged.
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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