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IBERIAN DAILY 05 JULY (ANÁLISIS BANCO SABADELL)

NEWS SUMMARY: SANTANDER.

MARKETS YESTERDAY AND TODAY

European stock markets consolidate over the week
The European stock markets consolidated over the week as the US indices continued to hit all-time highs (the S&P 500 rose to 4,330 points). Thus, the week’s best-performing sectors within the Euro STOXX were Household Goods and Basic Resources whereas Energy, Retail and Banks were the worst relative performers, falling by more than -2%. On the macro side, in Spain, unemployment contracted more than expected in June, falling by record rates for the second consecutive month. Separately, foreign visitors increased by +116% on a monthly basis in May, but still stand -76% below May’s average. In the US, non-farm employment increased more than expected in June, as did wage returns, whereas the unemployment rate climbed unexpectedly due to the rise in the workforce. Separately, trade deficit increased less than expected in May, but still stood the second highest in history due to the recovery of the internal demand. Lastly, May’s core capital goods orders were raised. In China, Caixin services PMI fell more than expected to 50.3. Lastly, the OPEC+ postponed the decision of raising production after the requirements of the UAE (improving its conditions and not extending the agreement through Dec’22).
What we expect for today
The European stock markets would see a slightly bearish opening. Currently, S&P futures are down -0.16% (the S&P 500 ended up +0.44% vs. its price at the closing bell in Europe). Volatility in the US decreased (VIX 15.07). Asian markets are sliding (China’s CSI -0.45% and Japan’s Nikkei -0.6%).
Today in the Euro zone we will learn June’s final services PMI and July’s SENTIX index, in the UK the country’s roadmap for lifting lockdown, and in Mexico June’s consumer confidence data. In debt auctions: Germany (€ 6 Bn in 6M and 9M T-bills) and France (€ 5.4 Bn in 3M, 6M and 9M T-bills).

COMPANY NEWS

SANTANDER, BUY
On Friday, Santander Holdings USA Inc. announced its intention to acquire the remaining 20% minority stakes in Santander Consumer USA Holdings INC. –SCUSA- at US$ 39.00/sh. (~+7.5% premium on the closing price as of 30 June). If it acquired 100% of them, it would have to pay some € 2 Bn (~3.5% of SAN’s market cap). Assuming SUCSA’s PN as of 1Q’21 (€~5.4 Bn) and Net Profit as of 2Q’21 BS(e), based on the consensus estimates’21 for SCUSA (some € 2 Bn), this would mean paying 1.7x P/BV (in line with other similar banks’ trading multiples). The transaction would generate some € 850 M of goodwill BS(e), that is -10bps in SAN’s CET ratio (12.30% as of 1Q’21 phased-in, 11.89% FL). Thus, based on the consensus’ Net Profit’22 estimates for SCUSA (€ 1.1 Bn), SAN would obtain some €+200 M of Net Profit (€ 7.2 Bn BS(e), in line with the consensus), that is a +3% increase. Thus, the transaction would mean returns on capital of ~25%.
Positive news that would help the bank achieve a RoTE of between 13% and 15% in the medium term. For the time being, our estimates and those of the consensus stand below this guidance range, at levels of ~10.5% in 2023 BS(e). In this regard, we would like to point out that obtaining a RoTE of 13% means a share price €>5.00/sh., that is ~+25% vs. our T.P. and +55% vs. the current share price.