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BBVA: ANALYST MEETING (ANÁLISIS BANCO SABADELL)

Highlights from BBVA’s analyst meeting held today:
 M&A: The bank reiterates it is open to value-enhancing deals for shareholders. For this reason, it analyses the potential synergies and financing formula of transactions to reach the expected rol, the size compared to BBVA must be also relevant, as an integration always entails risks and if the deal does not have a relevant impact for the group it is not worth it. At present, the low trading levels are a hurdle for this purpose, as well as the uncertainties surrounding the future NPL given the impact from the pandemic. The bank is not forced to conduct any deals in Spain or in other markets, and it would be only carried out if it is clearly value-enhancing. Specifically, in Spain, BBVA considers that its current size (15% market share) is more than sufficient to develop its franchise. As regards BKIA-CABK merger, it believes it will reduce competition and thus it will be positive for the sector.
 Outlook: The group reiterated the message conveyed yesterday on the better performance of revenues (ex currencies) in the 2H’20, cost-cutting and control and a 150-160bps CoR (vs. 150-190bps previously). The better performance is mainly justified by Mexico, where 92% of loans in moratorium have already expired and 90% are up to date, while its expectations in July stood at 75%. The bank justifies the better performance through the quality of its portfolio (40% of market share in payrolls, 44% mortgage LTV and consumer credit to known customers). Its efforts made in Turkey over the last few years to reduce its exposure to loans in dollar are evident and its credit quality has not deteriorated.
 Capital: The bank will end 2020 above its guidance, defined with a 225-275bps distance to MDA (meaning a 10.84%-11.34% CET1 and vs. 11.22% in the 1H’20). In the 2H’20 it will see regulatory impacts and positive asset sales (around +20bps), and it maintains its efforts on optimising APRs. The depreciation of currencies, and specifically that of the Turkish Lira, is a negative, although it is not new and it has the appropriate hedging. In 2021e, it expects additional ~15bps of regulatory impact (TRIM, EBA guidelines).
 Dividend: It plans to resume the payout guidance prior to Covid-19 (30%-40%) through a combination of cash and shares. In this regard, the mix is based on 3 criteria: (i) a cash component as closer as possible to that seen in 2018-2019 (€ 0.26/sh.) so as not to harm minority shareholders; (ii) dividend yield; and (iii) share price, which will determine whether the remuneration through buyback is more advantageous. In any event, the bank reiterates the message of resuming the dividend policy as soon as the ECB allows it.
MARKET IMPACT
We reiterate our opinion outlined yesterday on the positive messages, especially regarding capital (already known) and the improvement of CoR, which could lead the consensus to raise its estimates if BBVA is convincing in conveying a message of resilience in its loan stock. In this regard, and according to our estimates, every -10bps drop in CoR means an improvement of €~200 M in Net Profit (and vs. € 630 M of Net Profit’20e consensus and €~2.6 Bn of Net Profit’20e adjusted for one-offs).
In our view, the sector’s trading levels and those of BBVA, in particular, at March’s lows in both cases, mean an excessive punishment, even against the current backdrop of second wave of Covid-19 and partial lockdowns. In this regard, we see a new short-term trading opportunity again and positive messages and lower NPL, and those outlined today and yesterday by BBVA could be the excuse for a bullish reaction. With this in mind, we believe that this is basically a short-term trading opportunity, as we have mentioned, given the lack of messages on 2021-22, with this lack of visibility being the main uncertainty currently weighing on the sector.