EUR 850.00 For Business Accounts Only

Morningstar | Santander Posts Solid 3Q 2018 Results Driven by Operations in Brazil and Spain

Narrow-moat Santander reported solid pretax profits of EUR 3.8 billion for the third quarter of 2018. This is 4% higher than the corresponding period in 2017, if we adjust for currency weakness, particularly from Brazilian real profits before taxes increased by 17% on a constant currency basis. This result is in line with our expectations for the full 2018 fiscal year. We maintain our EUR 5.30 fair value estimate and narrow-moat rating.

Banco Santander Brasil (Santander holds 90% of its shares and it contributes 26% of Sanatnder's attributable profits) recorded another strong quarter, with pretax profits in reais growing by 34%, driven by 11% revenue growth, excellent cost controls (cost/income ratio improving to 32% in the current period compared with 35% in the third quarter of 2017) and stable loan losses. Nearly three quarters of Santander's revenue in Brazil comes from net interest income, the business benefited from strong volume growth especially in the consumer segment, which was also positive for margins.

The Spanish business, which  contributes 18% of Santander's attributable profits  enjoyed a very good quarter with preprovision profits growing by 19%, loan losses increased by 65% of a very low base which pulled back pretax profit growth to 7%. It is early days but it does seem that the consolidation of the Spanish banking sector is leading to improved profitability.

Santander continues to struggle in the U.K., which  contributes 18% of Santander's attributable profits. Preprovision profits declined by 10% in pounds sterling, and only loan losses declining from an already low base saved pretax profits from a decline.