EUR 100.00 For Business Accounts Only

SANTANDER: 4Q’20 RESULTS AND T.P. INCREASE (ANÁLISIS BANCO SABADELL)

4Q'20 vs. 4Q'19 Results:
N.I.I.: € 8.019 Bn (-9.3% vs. -12.3% BS(e) and -12.3% consensus);
Total Revenues: € 10.995 Bn (-12.7% vs. -15.5% BS(e) and -15.0% consensus);
Operating Profit: € 5.754 Bn (-13.1% vs. -17.6% BS(e) and -16.4% consensus);
Underlying Net Profit: € 1.423 Bn (-31.3% vs. -36.3% BS(e) and -39.4% consensus);
4Q'20 vs. 3Q'20 Results:
N.I.I.: € 8.019 Bn (+3.2% vs. -0.3% BS(e) and -0.2% consensus);
Total Revenues: € 10.995 Bn (-0.8% vs. -4.1% BS(e) and -3.5% consensus);
Operating Profit: € 5.754 Bn (-4.3% vs. -9.3% BS(e) and -7.9% consensus);
Underlying Net Profit: € 1.423 Bn (-18.7% in 3Q'20 vs. -24.6% BS(e) and -28.2% consensus);

SAN has released 4Q’20 results that beat expectations in all business lines, with only costs coming in slightly higher thand expected (+1.5%). Thus, the best reading comes in NII, which was +3.4% above the consensus (thanks to lending volumes and lower funding costs, offsetting the pressure on interest rates in all regions) and significantly improved vs. 2Q’20 and 3Q’20. We highlight the strong commercial performance in the UK, Brazil, US, Chile and SCF.
Fee revenues were in line with expectations, confirming the gradual recovery vs. 3Q’20 (+2.6%), especially in the aforementioned countries, and with CIB gaining traction. Moreover, these divisions have performed well in their respective CoR, which stood at ~1.28% on the consolidated level, slightly below the guidance’20 of ~1.30% and despite the worse performance in Spain (1.01% vs. 0.9% BS(e)). Thus, we can expect the guidance’21 to be set below the references seen. With all this in mind, Underlying Net Profit was around +13.5% above expectations. On the bottom line, some € -1.15 Bn of restructuring costs were put on the books this quarter corresponding to One Europe (around € -750 M BS(e)), of which € -700 M stems from Spain, € -121 M UK and € -218 M from Poland, Portugal, SCF, SCIB branches and digital. Note that SAN estimated total restructuring costs of between € -1.5 Bn and € -1.7 Bn, and thus the large provision made on the quarter is good news, as it would speed up synergies being obtained.
CET1 beat expectations, reaching 12.34% fully-phased-in (12.19% BS(e) and 12.20% consensus) and 11.89% FL. This compares to 11.98% and 11.57%, respectively, in 3Q’20. Thus, generation this quarter was +36bps: +23bps of organic generation, +10bps from the release of dividend accruals (to adjust it to the regulator-mandated 15% payout), +8bps from model adjustments net of regulatory items (here we understand that +20bps from software would have easily offset the TRIM from Corporates) and +22bps from market performance, which has offset the negative one-offs (-27bps). Thus, the capital figure has come in above the company’s guidance of between 11% and 12% fully-phased-in.
Lastly, the bank announced a DPS’20 of € 0.0275/sh. (in line with expectations; 1.1% yield) and kept its payout target at around 40%-50% when the regulator allows it. We expect the market to react positively to these results, after which we raise our Net Profit’21-22 estimates by +20% due to the improved costs and lower CoR. We have raised PPP by an average of +5%, as we include 75% of the synergies (€ 1 Bn) announced in One Europe, to be obtained in 2020-23. Furthermore, we improve CoR by 8-10bps per year over the 2020-22 period) and assume a CoR’21 of 1.2% and 1.12% for 2022e, in line with SAN, which expects a slight reduction to CoR’21 vs. ~1.3% 2020. That said, we should highlight that SAN, along with Bankinter, is one of the banks with the lowest Stage 1+Stage 2 provisions (~25% of the total vs. Unicredit, for example, at 75%). Thus, despite the revision, our CoR estimate is still above the level seen in 2019 (~1%) until at least 2023.
All this, along with a minimal adjustment we make in CoE (-30bps to 10.1%, thanks to higher visibility on the dividend payment), leaves our T.P. at € 3.30/sh. (+30% vs. previously), with +30% upside. We maintain our BUY recommendation. On the year the share price has fallen -3.93% (-0.6% vs. IBEX and -0.4% vs. sector), which has led to appealing trading ratios (0.6x TE’21 for a RoTE of ~8%).