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BANKINTER: 3Q’19 RESULTS (ANÁLISIS BANCO SABADELL)

3Q'19 vs. 3Q'18 Results
N.I.I.: € 307.74 M (+12.6% vs. +11.1% BS(e) and +10.5% consensus);
Total Revenues: € 540.11 M (+9.1% vs. +5.9% BS(e) and +6.9% consensus);
Operating Profit: € 261.67 M (+6.1% vs. +1.5% BS(e) and +2.6% consensus);
Net Profit: € 135.35 M (-5.0% vs. -8.0% BS(e) and -5.9% consensus);
3Q'19 vs. 2Q'19 Results
N.I.I.: € 307.74 M (+5.2% vs. +3.8% BS(e) and +3.2% consensus);
Total Revenues: € 540.11 M (+8.2% vs. +5.0% BS(e) and +6.0% consensus);
Operating Profit: € 261.67 M (+10.9% vs. +6.1% BS(e) and +7.2% consensus);
Net Profit: € 135.35 M (-17.5% in 2Q'19 vs. -20.1% BS(e) and -18.3% consensus);
The company released at yesterday’s closing bell better 3Q’19 results than expected in all business lines. We recall that the reading of this set of results is complicated, as they include 3 months of Evo Banco’s activity (vs. 1 month in 2Q’19).
The most important aspect is the fact that the commercial dynamic in BKT (ex-Evo) remains intact. That is, NII has grown +6.2% vs. 3Q’18 and vs. +5.2% BS(e), accelerating vs. the +5.8% seen in 2Q’19. This comes with lending growing +6.1% as of 9M’19 (slightly below our estimate of +7%) and the customer spread improving +10bps (due to higher loan profitability). Fee revenues grew +4% vs. 3Q’18 and vs. 2% BS(e), underpinned by the strong commercial activity. All this, along with the lower operating expenses on the quarter (more in line with 1Q’19) have allowed Total Revenues to rise +5.3% vs. 3Q’18 and vs. +2% BS(e). Despite the higher activity levels, recurring banking costs rose +3% vs. 3Q’18 and the strong cost control in LDA means the comparison vs. 3Q’19 is favourable (-2%). Thus, the solid performance of the jaws ratio has led Operating Income to rise +13% vs. 3Q’18 and vs. the flat performance we expected. On the bottom line of the P&L statement we highlight the CoR, which has remained low at 23bps, and rising legal provisions. With all this in mind, and considering the lower tax rate (26% vs. 28% BS(e)), Net Profit has risen +4% vs. 3Q’18 and vs. +1% seen in 2Q’19.
As for EVO’s performance (Evo Banco + Avancard) on the revenue level, it was fully in line with our estimates in all headlines for Gross revenues, which came in at around € 19 M (3.6% in consolidated terms). The main slippage came in costs. Evo has accounted this quarter €-35 M of costs, of which €-23 M are recurring and €-11 M are one-offs, in the framework of its integration process. The company has already pointed out that a similar adjustment in 4Q’19 can be expected. As a result, the badwill generated will almost entirely go towards cleaning up Evo’s costs and lending portfolio. Thus, no significant one-off adjustments are expected for 2020.
Lastly, we would like to stress that LDA has registered premium growth of +5%, in line with expectations, but also a worse CR (at 87.4%), due to the increased number of claims (86.1% BS(e)).
The FL CET1 increased by +7bps on the quarter to levels of 11.57%, which is within the company’s guidance range of ~11.5%. An additional +10bps/+20bps could be released due to the approval of internal models in Corporate, which is expected for 4Q’19.
In short, this commercial growth is even more in contrast to the company’s peers that have already released their results, at a time when the company has released its SREP ratio, which will remain constant for the next two years (vs. annual revision in peers). We expect a positive market reaction, especially after the drop slid yesterday by -1%. SELL, T.P. € 7.32/sh. (+15.36% upside).