Santander Bank Polska – Unfulfilled Hopes of Merger Synergies
We downgrade Santander Bank Polska ("Santander") from hold to reduce, and we lower out target price by 11% to PLN 337.00. Looking at the Bank's first-quarter results, and given the prospects for the second quarter, the current FY2019 consensus forecast at PLN 2,571.7m strikes us as being overstated to the tune of 9%. For the sake of comparison it might be interesting to recall that the historical consensus before 14 December 2017, i.e. before Santander announced its merger with the Polish unit of Deutsche Bank, stood 11% and 5% higher, respectively, than today's consensus for FY2019 and FY2020. The reasons behind the dampened expectations of analysts, aside from higher expenditures driven by hiked contributions to the Deposit Guarantee Scheme and post-merger integration, include weaker-than-anticipated fee income and greater cost of risk, up from 63bp to over 80bp since 2017 due to much lower proceeds generated from NPL sales. On top of all that, after dipping into retained earnings this year, Santander will not be able to offer dividend yields as impressive in future years, when yields are not likely to get to 4%. Summing up, the 9% premium at which SPL is currently trading relative to the 2020E P/E of the banking sector seems unjustified, with rival banks like PKO BP (PKO) and Pekao (PEO) offering much more worthwhile prospects, including twice the dividend yield and comparable returns on equity.
Bank Zachodni is a bank seated in Poland. Co. and its subsidiaries provide a range of banking services for individual and business customers and operate in domestic and interbank foreign markets. Additionally, Co. provides also the following services, including intermediation in trading securities, leasing, factoring, asset/ fund management, insurance services, trading in stock and shares of commercial companies, and brokerage activity. Operational activity of Co. and its subsidiaries has been divided into five segments: Retail Banking, Business and Corporate Banking, Global Banking and Markets, ALM (Assets and Liabilities Management) and Centre, as well as Santander Consumer.
Set up in 1986, mBank (originally BRE – Export Development Bank) is Poland’s 4th largest universal banking group in terms of total assets and 5th by net loans and deposits at the end of June 2019. mBank has one of the oldest brokerages in Poland – we have been providing brokerage services since 1991 - and the biggest, serving about 300 ths clients.
We provide all brokerage services available in the Polish capital market (i.e. Warsaw Stock Exchange, non-public markets and forex) in a way that meets the expectations of all groups of investors, both individual and institutional. Participating in the dynamic growth of the Polish capital market since its inception, we have acquired competences and experience needed to provide the highest quality of service and we have won the trust and satisfaction of our Clients.
Over the past decade, mBank's Equity Research Team has been consistently ranked among the top research teams in Parkiet's annual institutional investor surveys (Parkiet is Poland's leading daily business newspaper). mBank analysts provide coverage on an extensive list of companies, mainly in Poland but also elsewhere in the CEE region: Austria, Czechia, Portugal, Ukraine and Hungary.
Clients get access to a comprehensive selection of research products including daily market insights, monthly roundups, macroeconomic views, industry- and company- specific analyses, investing strategies, earnings comments, etc.
We give our institutional clients numerous opportunities to connect with industry professionals, top executives, and leading analysts:
- Get direct access to senior management teams at listed companies (over 30 meetings in 2018),
- Engage in our many industry events, featuring listed Polish and global firms (in 2018, we hosted sector-themed conferences around industrials, chemical companies, telecoms, retail, and financials, and co-hosted a Best of Poland investors' with Commerzbank and the Warsaw Stock Exchange),
- Stay informed through an array of enlightening discussion panels, workshops, and briefing sessions with regulatory officials.
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