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Unicaja 3Q18 results: As expected, results came out with no surprises

 

3Q18 net profit: €37.0mn

Unicaja obtained a net profit of €37.0mn (–21.8% qoq and –26.6% yoy) in 3Q18, below the consensus figure of €43mn. 9M18 net profit amounted to €142mn implying a +4.5% annual increase.

Business as usual

Net interest income declined –1.2% qoq, to €148.8mn, due to the mortgage’s floors. Fees slipped just –0.1% qoq, to €55.3mn while trading income rose +17.9% qoq, to €15.5mn, leading to a gross income of €243.4, +0.6% qoq and –5.1% yoy. Total costs amounted to €155.2mn (+0.2% qoq and –1.6% yoy). Total provisions rose +46.8% qoq, to €36.4mn, due to lack of sales of written–offs portfolios. Performing loans declined –3.1% qoq, to €25.6bn, mainly due to the –22.1% qoq fall of public loans and the –15.1% decline of consumer loans (recall the payroll advances booked in 2Q18). Retail customer funds declined –1.4%% qoq, to €50.7bn. Asset quality, liquidity and solvency improved in the quarter once again: NPL ratio fell to 7.5%, LTD to 74% and CET 1 fully loaded rose to 13.8% (should retained earnings be included).

The new ERE: No disclosures

As the management is negotiating with the unions the new headcount reduction plan, they did not disclose any figure. They reiterated their aim of offsetting the impact with capital gains from its fixed income portfolio.

The impact of the tax sentence

The management has claimed that the sentence should have no retroactivity and they have not indicated any figure. On our estimates, the impact of 4 years retroactivity would be some €50-70mn pre–tax. In relation with the IRPH, the bank holds only €130mn in mortgages linked to this index.

Trading at all–time lows

Unicaja is trading at 0.46x and 0.44x 2018e and 2019E P/TBV for an expected 2019e ROTE of 5.4%. Even if we assume no improvement from such level, the upside potential would be +12%. Furthermore, should we adjust the CET 1 fully loaded ratio to its 12% target, the ROTE may improve c. 0.8pp. We believe that, in spite the sub–optimal profitability of the bank, the ratios are currently too low for the expected future returns, even including legal risks for which the bank has €300mn in provisions. We upgrade our recommendation to Buy.