EUR 100.00 For Business Accounts Only

BBVA: 1Q’20 RESULTS AND CHANGE OF T.P. TO UNDER REVISION (ANÁLISIS BANCO SABADELL)

1Q'20 vs. 1Q'19 Results:
N.I.I.: € 4.556 Bn (+3.6% vs. +1.8% BS(e) and +1.6% consensus);
Total Revenues: € 6.483 Bn (+6.8% vs. +0.6% BS(e) and -0.4% consensus);
Operating Profit: € 3.565 Bn (+14.1% vs. +2.5% BS(e) and -1.7% consensus);
Net Profit: € -1.792.0 M (€ 1.182 Bn in 1Q'19 vs. € 1.072 Bn BS(e) and € 939.0 M consensus).
1Q'20 vs. 4Q'19 Results:
N.I.I.: € 4.556 Bn (-3.6% vs. -5.3% BS(e) and -5.5% consensus);
Total Revenues: € 6.483 Bn (+1.0% vs. -4.9% BS(e) and -5.9% consensus);
Operating Profit: € 3.565 Bn (+6.9% vs. -4.0% BS(e) and -8.0% consensus);
Net Profit: € -1.792.0 M (€ -154 M in 4Q'19 vs. € 1.072 Bn BS(e) and € 939.0 M consensus).

BBVA has posted net losses totalling € -1.792 Bn ( vs. € 1.077 Bn BS(e) and € 939 M consensus) due to higher Covid-19 provisions (€ 1.46 Bn vs. around € 400 M BS(e) and consensus) and goodwill impairment in the US (€ 2.084 Bn). Thus, the underlying Net Profit came in at € 292 M with a better performance of Operating Profit (+14.1% vs. +2.5% BS(e)) and -2% consensus) thanks to NII (+4% vs. around +2% expected), higher trading revenues and cost control.
Provisions totalled €-2.57 Bn (implied CoR YoY of 257bps). The company has made a provision of € 1.46 Bn for Covid-19 (CoR of 141bps) in addition to €~1.1 Bn of recurring provisions (CoR of 116bps, meaning a slight increase vs. CoR’19 of ~100bps). We understand that BBVA has moved provisions for Covid-19 forward to 1Q’20 (we expected €~400 M), but it will be key that the company confirms in its results presentation whether it expects a greater impact on the coming quarters, as, if this was the case, there might be estimate cuts (if we extrapolate the provisions made in 1Q to the rest of the year, we would see levels +40% above our estimate). In this regard, our we estimate provisions’20 at € 6.04 Bn (€ 5.93 Bn consensus), which means a CoR of 150bps, with an impact from Covid-19 of € 1.6 Bn, in line with the provision made in 1Q’20.
In capital, CET1 came in at 10.84%, -90bps vs. Dec’19, due to market risks and provisions. BBVA has changed its capital guidance, and it is now subject to maintaining a distance of 225-275bps from MDA. With the mitigating factors given by the ECB in this crisis, this means a target range of 10.84%-11.34% (vs. the previous 11.5-12.0%), in the low end of the range (vs. average in Dec’19 of 11.77%). The bank has also announced that it is cancelling the DPS’20, which we already expected.
We place our T.P. Under Revision. In our Covid-19 scenario of V-shaped recovery (two quarters of deep recession followed by moderate recovery in the third quarter, strong recovery in the fourth and very strong recovery in the next year, with a momentum that will might even last until the second year), we will cut our Net Profit/EPS’20-21e by -26%, reducing our T.P. proportionally to around € 3.60/sh., which would yield +13% upside. However, we think there are more appealing alternatives in the sector, and we reiterate our SELL recommendation. In our negative scenario of moderate U-shaped recovery (two quarters of deep recession followed by modest growth in 3Q and 4Q and strong recovery the next year and the second one; recovery in 18-24 months), we would cut our estimates by another -15%, bringing our T.P. to €~3.06/sh., with no upside. From market highs on 19 Feb, when the Covid-19 impact began to be felt, BBVA has fallen -38%, -7% vs. Ibex and +7% vs. the sector. The share price is rising slightly.