EUR 200.00 For Business Accounts Only

SANTANDER: VIRTUAL MEETING WITH THE COMPANY (ANÁLISIS BANCO SABADELL)

Highlights from the meeting held today with Santander’s Investors Relation Department:
 Outlook’21. The company has stressed the main guidelines already outlined in its 1Q’21 Results, which we explain below:
- Total Revenues. In general, all headings in revenues should grow by mid single digit, led by NII and Fee Revenues, where the bank has highlighted that since the beginning of 2021 this has been reflected in the consensus estimates.
- Costs: Likewise, we should expect a downward trend to continue, bearing in mind the restructuring costs undertaken. Thus, added to the savings announced in the 2019 Investor’s Day of € -1 Bn are those announced in 2020 for another € -1 Bn (around -10% on the cost base in Europe, 4.7% on the consolidated level), with some € -1.7 Bn of restructuring costs associated (fully accounted in 1Q’21 results). In other words, in 2021 the cost base in Europe should fall to around € -9.5 Bn (-9.5% vs. 2020, in line with our estimate) and to around € -8.5 Bn in 2022 (an additional -10.5%). The substantial cost reduction in Europe would more than offset the increase expected in LatAm, which would (if it comes about) be below inflation. On the consolidated level, the consensus estimates a -3% drop in costs in 2021 and flat in 2022, and thus we think it already includes the savings announced in Europe.
- C/I: With the expected improvement in revenues and falling costs, the efficiency ratio’21 would be better than the 47% achieved in 2020. This compares to the consensus estimate of 46% (in line with our own estimate).
- CoR’21: Cost of risk would be below the 2020 level, which was 128bps (already reflected in consensus estimates), with better performance in all regions (except in Mexico due to the lower Govt. support for the crisis).
- Thus, we believe the company is hinting that the € 6.69 Bn of underlying Operating Net Profit could even be raised (which would underpin a RoTE of 10% for this year and would support the medium-term target of 13-15%).
 Capital. The bank is comfortable with the CET1 range of between 11%-12% for SAN’s diversified profile, and is focused on generating RoTE and, therefore, capital (some 40bps annually). The company recalls that the regulatory adjustments’21 pending would total some -30bps. To this we must add the -8bps from the acquisition of minority stakes in Mexico (assuming an acceptance level of 100%). The starting point is 12.30% (phased-in) in 1Q’21, 11.89% FL, with a reserve of 40% as payout. The company clarifies that, from now on, and according to the ECB’s indications, it will set aside the high guidance range (50%). As a result, the phased-in CET1 ratio might end the year at levels slightly above those seen in 2020 (12.34% phased-in). As for B-IV adjustments, the company recalls that the guidance given last year of -100bpps was a mere indication, and did not take into account any mitigating measures for management actions (securitisations). It also notes that the adjustments made to the model will also help reduce the impact, and that a phase-in will be done.
 Dividend. Beyond the payout mentioned, the news in our view is that we could rule out a dividend payment in scrip format already in 2021, with the possibility of buybacks gaining traction (SAN has never bought back shares), which was already commented on in its 1Q’21 results. The company makes it clear that the medium-term RoTE of between 13% and 15% does not include any buybacks. Meeting the high range of the guidance will depend, in our view, on the performance of payment methods, among other factors.
 GetNet. Currently, GetNet is 90% owned by Santander Brazil, a country in which it has a 15% market share (2020). The listing of this Brazilian payment system company (to be carried out shortly) will have no effect on the Group level, although after doing so, the subsidiary will be directly owned by Santander through PagoNext (10% held by the market). The platform is being developed in other countries (although they would not be part of the listing). The spin-off represents around 2.5 Bn BRL (i.e. 2%-3% of SAN Brazil’s equity). To give some context, Cielo, its closest peer, is trading at 1.1x P/BV.
MARKET IMPACT
Confident messages as regards RoTE generation, which will lead to a slight estimate increase in the short-term by the consensus and BS(e) (we will raise our estimates by around >10% in our upcoming annual report), with our T.P. increasing to levels of around € 4.00/sh. (+21% vs. currently; tentative upside of around +14%).