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Caixabank 3Q18 results: Strong operating performance

 

3Q18e net profit to amount to €476mn

Caixabank will release its 2Q18 results on Friday, October 26th before market opens. A webcast will take place at 11.00 CET. We expect that 3Q18e net profit may amount to €273mn (–57.9% yoy and –54.0% qoq), implying a 9M18e net profit of €1,571mn (+5.6% yoy). We are above the consensus that expects a net profit of €215mn because we have included BPI’s actual 3Q18 results that include the gains on the sale of TPV business (€42mn net) and a provision release of €16mn. The results also include the €450mn losses from the announced sale of the Repsol’s stake.

A strong operating performance

We expect NII to reach €1,238mn (+3.1% yoy and +0.7% qoq), fees of €626mn (+1.8% yoy and –6.1% qoq due to the summer) and a gross income of €2,227mn (+0.7% yoy and –6.9% qoq) mainly due to lower capital gains versus the former quarter. Costs may increase +2.5% yoy (to €1,157mn) leading to a pre–provision profit of €1,070mn (–1.1% yoy). Asset quality should improve to a NPL ratio of 5.0% (from 5.3% in 2Q18), leading to a cost of risk below 30bp. CET 1 fully loaded will be negative impacted by the drop of Telefonica shares (–€120mn or 8bp) and the fixed income portfolio (we estimate further €150mn). All in, CET 1 fully loaded may decline to 11.1% from 11.4% in 2Q18.

The regulatory risk impact.

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 new mortgages granted from 2014 onwards amounted to €35bn (including both residential and non–residential) according the information from the covered bonds, the impact would be €525mn or 1.6% of market cap post–tax (–36bp in CET 1). On top of that recall that it is still pending the European Court sentence regarding the IRPH rate. Current portfolio of mortgages linked to this index amounts to €7bn. Assuming a 1% higher rates in this mortgages vs. those linked to Euribor and 10 years of payments, the total cost could be €700mn (2.4% of market cap net and c. 50bp on CET1)

Target value Dec. 2019e: €5.28 per share

We have rolled forward our target value to Dec. 2019, increasing it to €5.28 per share from €4.96 per share. Should we include the impacts mentioned above, our target price would be reduced to €5.08. Buy.