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Liberbank 3Q18 results preview. Upgraded to buy.

 

3Q18e net profit to amount to €30mn

Liberbank will release its 3Q18 results on Tuesday, October 30th before market opens. The company will hold a video webcast at 11.30 CET that will be accessible from /. We expect that 3Q18e net profit may amount to €30mn (–46.0% qoq), implying a 9M18e net profit of €114mn (vs. –€270mn losses in 9M18). We are slightly above the consensus that expects a net profit of €28mn.

Revenues on the good track.

We expect net interest margin to increase +15.9% yoy and +0.1% qoq, to €116mn, based on an increase on the performing loans book and a larger and more profitable fixed income portfolio. Fees may decline –13.5% qoq, to €45mn, due to the lack of non–recurrent fees (€5mn in 2Q18) and the seasonal weakness of summer. Once included trading gains, dividends and other operating income, gross income should amount to €164mn, implying a +12% yoy growth and –14.2% qoq. 9M19e gross income may rise to €527mn (+5.4% yoy). Trading gains may represent 6.6% of total.

Asset quality improves again.

Operating costs may decline –2.7% yoy and –1.6% qoq, to €100mn. The measures implemented are reaping its fruits. We expect the cost of risk to decline to 25bp (annualised). NPL ratio may decline to 6.0% (from 6.75% in 2Q18) with a c. 55% coverage ratio.

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 latter is finally fixed in 4 years and new mortgages granted from 2014 onwards amounted to c. €5bn (including both residential and non–residential), the impact would be €60mn or 3.3% of market cap post–tax (–35bp 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 €130mn. Assuming a 1% higher rates in this mortgages vs. those linked to Euribor and 10 years of payments, the total cost could be €13mn (0.7% of market cap net and c. 8bp on CET1)

Target value Dec. 2019e: €0.57 per share

We have rolled forward our target value to Dec. 2019, increasing it to €0.57 per share from €0.51 per share. Should we include the impacts mentioned above, our target price would be reduced to €0.54. With c. 50% upside potential and 0.42x PTBV, we upgrade our recommendation to Buy.