EUR 150.00 For Business Accounts Only

Santander Bank Polska: CHF mortgage portfolio puts pressure on valuation

We maintain Santander Bank Poland as a NEUTRAL despite its CHF exposure. We like the growing earnings, supported by the final phase of the DB acquisition, when the integration synergies should outpace considerably the diminishing costs of the integration. However, the NIM recovery may be set back by new regulations, while the cost of risk - especially in the corporate segment - looks low (in 2019E). Plus we have lowered our dividend expectations (50% payout now includes non-distributed earnings). The stock trades at a 2020E P/E of 12.3x, a 7% premium to the sector (11.4x), and we believe this prices in integration synergies and slightly stronger than average ROE. We lowered our 2019-21E net profit by 13% to PLN 2.15bn (-10% YoY, +1% YoY adjusted), by 21% to PLN 2.29bn (+6% YoY) and 16% to PLN2.62bn (+15% YoY). We have adjusted earnings for: 1) expected result of September’s CJEU ruling concerning the return of the early repayment of consumer loan fees (annual negative impact of some PLN 240m on NII, fading over time); 2) higher BFG fees (some PLN 80m annually); 3) higher net provisioning in both the corporate and consumer segments; 4) introduction of the gradual portfolio provisioning of FX loans following the less favourable court rulings (PLN 106m, i.e. 1% of the portfolio in 4Q19E and PLN 2m, i.e. 2% of the portfolio in the following years). Our net income estimates for 2019-21E are below consensus by 6%/13%/7%, respectively. This is in our opinion partly due to higher cost of risk expectations and due to additional provisioning regarding the CHF mortgage portfolio. At the same time it needs to be noted that the provisioning is very unpredictable, both in terms of its appearance and magnitude. We lower our FV by 32% from PLN 374.1 to PLN 255.8 ps (including an exp. loss on the CHF portfolio at PLN 21.6 ps, i.e. 8%).