Santander: Strong operating performance shadowed by €515mn of extraordinary charges
3Q17 results: Strong operating performance shadowed by €515mn of extraordinary charges
Santader obtained €1,461mn in net group profit in 3Q17 and €1,976mn in underlying net profit, the latter surpassing the consensus estimates by +5.8%. The group booked €515mn as non–recurring charges: (a) €300mn as restructuring costs for Popular, (b) €85mn as restructuring costs in Germany SCF and (c) €130mn for intangible assets and other. The exchange rates eroded c. 5pp to underlying profit growth, to +13.0% qoq from +18.0%, in line with our expectations. NII rose +0.9% qoq, fees –1.0%, gross income +1.7%, net operating income –+1.3% and profit before taxes +9.7%. By geographical areas, Continental Europe obtained €750mn (+8.0% qoq), UK €1,069mn (+1.8%) and US €93mn (–37.2). Loans declined –1.6% qoq, to €857bn mainly due to the –14.5% reduction in Popular to €79.6bn. Customer funds rose +1.9%, to €892bn again mainly due to Popular (+12.3%). CET 1 fully loaded stands at 10.8% (9.58% in June 2017), with an organic generation of 8bp once deducted the 6bp from the extraordinary charges. NPL ratio improved to 4.24% (5.37% in June 2017) while coverage declined to 65.8% (67.7% in June 2017). Tangible book value per share increased to €4.20, from €4.11 in June 2017.
Buy rating and €6.3 target price maintained
This set of results confirmed the positive operating trends witnessed in the previous quarters. The bad news was the unexpected charges for restructuring that would lead to a downgrade in our full year net profit to c. €6.6bn for €7.1bn. The key challenge for the group is stabilising Popular: the commercial effort has had a positive effect in customer funds, with the increase aforementioned. From now onwards it will be important to follow the judicial front, the restructuring of the network and it impact on volumes and the final impact of the real estate sale to Blackstone in the group’s financial statements.
We maintain unchanged both our December 2017 target price and our Buy recommendation.
Banco Santander is a holding company, providing a range of financial products. Co.'s products and services include: retail banking business that covers all customer banking businesses; wholesale banking business; as well as asset management and insurance business. Co.'s principal operations are in Spain, the U.K., Portugal, Germany, Italy and Latin America. As of Dec 31 2014, Co.'s total assets amounted to Euro1,266,296,000,000 and total customer deposits amounted to Euro647,627,000,000.
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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