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BBVA: 4Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

4Q'20 vs 4Q'19 Results
N.I.I.: € 4.038 Bn (-14.6% vs. -12.5% BS(e) and -13.8% consensus);
Total Revenues: € 5.267 Bn (-17.9% vs. -17.1% BS(e) and -16.1% consensus);
Operating Profit: € 2.662 Bn (-20.2% vs. -20.2% BS(e) and -18.9% consensus);
Net Profit: € 1.319 Bn (€ -154.0 M in 4Q'19 vs. € 1.152 Bn BS(e) and € 1.092 Bn consensus);
4Q'20 vs 3Q'20 Results
N.I.I.: € 4.038 Bn (-1.7% vs. +0.6% BS(e) and -0.9% consensus);
Total Revenues: € 5.267 Bn (-7.0% vs. -6.1% BS(e) and -4.9% consensus);
Operating Profit: € 2.662 Bn (-13.9% vs. -13.9% BS(e) and -12.5% consensus);
Net Profit: € 1.319 Bn (+15.6% in 3Q'20 vs. +1.0% BS(e) and -4.3% consensus);

The company has obtained € 1.32 Bn of Net Profit, around +21% above the consensus (+15% vs. BS(e)) due to lower provisions, stemming mainly from recoveries in the US and better performance in Turkey. On the Operating Income level (-22% vs. 4Q’19 vs. -18% consensus) the performance was weak in NII (-2% vs. 3Q’20; around -1% vs. expectations) due to Spain, Mexico and Turkey, partially offset by the larger gain in fee revenues (+3% vs. 3Q’20 and vs. around -1% expected), which were in line in Spain and stronger in the rest of the countries. Costs were in line, meaning a -13% drop vs. 4Q’19 with inflationary pressure in Mexico, offset by the better performance in the rest of the areas, especially the corporate centre. In loan quality, provisions were around -30% below expectations, meaning a CoR’20 of 151bps, in the low end of the guidance’20 range (150-160bps). Here the performance was positive in the US and Turkey, but worse than expected in Mexico, where the NPL ratio rose +1pp on the quarter.
By countries, on the positive side we highlight the US, with revenues accelerating and better CoR. On the negative side is Mexico, where we see a slowdown in lending growth in 4Q’20, pressure on NII (around -1% vs. 3Q’20 and -3% vs. expectations) and a rise in NPLs. In Spain there is still weakness in NII, offset by the improvement in fee revenues and cost control.
In capital, CET1 totaled 11.73% (around +20bps), better than expected as it was in line with the consensus (11.83% BS(e)), but it includes -20bps from TRIM that we were not anticipating. The bank has announced a DPS’20 of € 0.059/sh. (15% payout, 1.5% yield), in line with expectations and the aim of buying back 10% of the capital (€~2.6 Bn, ~10% yield) starting in 3Q’20 after ECB authorisation and depending on the share price.
We expect a slightly positive reaction, given that despite the confirmation of the buyback, operating performance has been weak in Mexico, and with no improvements in Spain and Turkey. The guidance’21 to be given by BBVA in its results presentation (at 9:30 CET) will be key. BBVA has fallen -2.3% thus far this year, in line with the sector (around -1% vs. Ibex), but has performed poorly in relative terms in the last week, which we believe is not justified. BUY. Target Price: € 4.30/sh (upside 9.11%)