EUR 200.00 For Business Accounts Only

BBVA: SALE OF BBVA USA - UPGRADED TO BUY (ANÁLISIS BANCO SABADELL)

We welcome the sale of the US subsidiary announced yesterday, which led us to upgrade our recommendation to BUY (from SELL) yesterday morning. In this regard, we should point out the price obtained in the sale (€~9.7 Bn; ~20x P/E’19, 1.34x P/TE and 50% market cap) that values the business at ~2x peer ratios in US regional banks, and which represents a +70% premium over our valuation of the subsidiary (+30% vs. average consensus valuation).
The sale will allow the bank to free up € 8.4 Bn of capital (pro forma CET1 post-sale of 14.5%), and BBVA has confirmed that it will earmark the funds for M&A moves that generate value and/or to an extraordinary dividend. In our view, both of these options are feasible, and we think it is quite likely that they will come in 2021 and that an acquisition (in Spain or Portugal) will be announced before the sale of the US business is finalised (expected in mid-2021). Looking at the size/valuation of the deals that could be made in mature markets, we estimate that BBVA could finance a medium-sized acquisition and pay out up to €~0.63/sh. to shareholders (~15% yield).
We still see the bigger risk in emerging markets (Turkey, Mexico) as a negative compared to BBVA’s peers, although this is also improving. That said, the positive performance in Mexico in 3Q’20 (with more than 70% of loan moratoria expired) and the measures taken recently by the Turkish Govt. (seeking to solve the financial and macroeconomic risk) allow for a more optimistic view on the risk in these two countries. Now added to this is the aforementioned €~8.4 Bn of capital that will be freed up (for M&A and/or shareholder remuneration).
With all this in mind, we take the opportunity of this report to revise our 2020-22e estimates, which we raise an average of +10% due to the lower CoR. In this regard, we do not deconsolidate the US business, as until the deal is closed and executed (expected in 2H’21), the business will continue to contribute to the consolidated figure. On the valuation, based on the 2022 cash flow, we do eliminate the US business’s contribution to Net Profit, which we now value according to the selling price (€ 9.7 Bn vs. € 2.6 Bn previously). We raise our T.P. +56% to € 4.30/sh., with a +22% impact from the revision of estimates and the improvement to the capital position, with the remaining +34% stemming from yesterday’s announcement. Despite the rise yesterday (+17%), our T.P. yields around +15% upside. On one hand, the T.P: could be pressured if the bank does not invest the funds obtained at 1x BV (which is the hypothesis in our valuation), but on the other hand, we believe that if BBVA manages to reduce the weight of the business in emerging markets with an acquisition, this should be positive through a lowering of the risk premium (to €~4.60/sh. BS(e)).