BANKIA: 2Q’20 RESULTS (ANÃLISIS BANCO SABADELL)
2Q'20 vs 2Q'19 Results
N.I.I.: € 464.0 M (+1.3% vs. -0.1% expected and +0.9% expected by the market consensus);
Total Revenues: € 784.0 M (-4.7% vs. -4.8% expected and -4.7% expected by the market consensus);
Operating Profit: € 355.0 M (-11.0% vs. -20.0% expected and -15.3% expected by the market consensus);
Net Profit: € 48.0 M (-49.1% vs. -58.5% expected and -59.7% expected by the market consensus);
2Q'20 vs 1Q'20 Results
N.I.I.: € 464.0 M (-10.1% vs. -11.3% expected and -10.5% expected by the market consensus);
Total Revenues: € 784.0 M (-8.6% vs. -8.7% expected and -11.2% expected by the market consensus);
Operating Profit: € 355.0 M (-11.7% vs. -20% expected and -23.9% expected by the market consensus);
Net Profit: € 48.0 M (-75.4% in 1Q'20 vs. -80% expected and -80.5% expected by the market consensus);
The company has released better 2Q’20 results than expected in revenues and much better in costs. In revenues we highlight that NII fell -10.1% vs. 2Q’19 (slightly better than our estimate of -11.3% and -10.5% consensus), with the negative trend worsening (-8.7% in 1Q’20). Thus, neither the volume effect from ICO nor the lower negativisation of the Euribor have offset the drop in consumer lending (the most profitable with a yield of 8%) and the natural mortgage maturities (€ 1.5 Bn/quarter). All this has translated into a significant drop in the customer spread down to 1.46% (vs. 1.45% BS8e), 1.53% in 1Q’20 and closer to 1.60% average in 2019). Fee revenues continued to see strong growth (+9.9% vs. 2Q’19, far above the +4.4% from the consensus and more in line with our estimate of +7.4%), and for the time being speeding up vs. the +9% growth seen in 1Q’20 (all this coming against a backdrop of slowed economic activity). This is behind the better revenues performance.
Likewise, costs were surprisingly reduced by -5.9% vs. 2Q’19 and vs. 0% consensus and around +1% BS(e), which is far below the company’s guidance’20 of flat costs. Thus, the erosion of jaws was -3% vs. the double-digit figure expected (around -10%).
CoR came in at 93bps on the quarter. BKIA has accounted a Covid-19 provision of € 185 M, in addition to the € 125 M provision from 1Q’20. Thus, CoR exc. Covid-19 would total ~34bps. The Company has used the capital gains from Caser (some € 50 M) to increase the coverage ratio (as shown in our estimates). The key aspect to monitor in the results conference call (at 9:00 CET) is that, in order to maintain the guidance’20 of 70bps as of the end of the year, the implied CoR should be ~50bps in 3Q’20 and 4Q’20; otherwise, the guidance would have to be raised (which we do not expect).
Lastly, good performance of FL CET1, which reached 13.27% (+32%bps vs. 1Q’20; +15bps from organic generation and +17bps regulatory impacts) and vs. practically flat we expected. The bank announced potential adjustments of +41bps due to IFRS9 calendar, +19bps on software and +8bps on valuation adjustment, leaving a proforma level of 13.95%. In conclusion, we expected a good reaction to these results. BUY. Target Price: € 1.22/sh (upside 12.38%)