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BBVA: 3Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

3Q'20 vs. 3Q'19 Results
N.I.I.: € 4.109 Bn (-8.4% vs. -8.2% expected and -8.3% expected by the market consensus);
Total Revenues: € 5.663 Bn (-7.7% vs. -9.3% expected and -9.5% expected by the market consensus);
Operating Profit: € 3.093 Bn (-3.0% vs. -6.2% expected and -9.3% expected by the market consensus);
Net Profit: € 1.141 Bn (-6.7% vs. -35.2% expected and -37.0% expected by the market consensus);
3Q'20 vs. 2Q'20 Results
N.I.I.: € 4.109 Bn (+0.3% vs. +0.5% expected and +0.5% expected by the market consensus);
Total Revenues: € 5.663 Bn (+1.8% vs. +0.0% expected and -0.2% expected by the market consensus);
Operating Profit: € 3.093 Bn (+4.2% vs. +0.8% expected and -2.5% expected by the market consensus);
Net Profit: € 1.141 Bn (+79.1% in 2Q'20 vs. +24.5% expected and +21.0% expected by the market consensus);
The bank has obtained € 1.141 Bn of Net Profit (-7% vs. 3Q’19), around 28% above expectations thanks to lower provisions (-36% vs. consensus; CoR 97bps vs. 151bps in 2Q’20) and the good performance of costs (-13% vs. 3Q’19; in line with BS(e); ~3% better than the consensus). In revenues (-7.5% vs. 3Q’19 and vs. -9% expected), good performance in fee revenues (-10%; ~+4% vs. expectations), while the NII (-8% vs. 3Q’19) performed in line, showing the expected weakness.
By countries, very good performance of Mexico and Turkey, in both cases thanks to the better operating evolution and lower provisions. The US saw a slight recovery in revenues that was offset by higher provisions due to a strong pick-up in the NPL ratio. In Spain, the operating performance did not improve, with a greater than expected drop in NIM (-1.8% vs. 3Q’19) and without recovery in fee revenues.
In terms of capital, the bank reached 11.52% of CET1 (+30bps vs. 2Q’20 and vs. +15bps expected) thanks to better organic generation, offsetting the currency impact with lower inflation in APR. The CET1 ratio means excess vs. the required level of 293bps, above its 2020 guidance of 225-275bps. We also stress that BBVA does not account the IFRS9 transitory disposition, included by most banks. Including it the CET1 ratio would stand at 11.99%.
Lastly, it unveiled its 2021 guidance, forecasting stability in revenues (excluding FX impact), cost control and CoR reduction. (vs. 2020 guidance of 150-160bs CoR; 169bps through 9M’20 and around 161bps BS(e) for 2020e).
We expect a positive share price reaction, underpinned by the better results released, the good performance, the absence of deterioration in NPL in Mexico and Turkey and the robust capital performance.SELL. Target Price: € 2.75/sh. (upside 17.57%)