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LIBERBANK: 3Q'19 RESULTS (ANÁLISIS BANCO SABADELL)

3Q'19 vs. 3Q'18 Results
N.I.I.: € 116.0 M (+0.9% vs. +0.3% BS(e) and 0.0% consensus);
Total Revenues: € 159.0 M (-0.6% vs. +0.9% BS(e) and +2.5% consensus);
Operating Profit: € 60.0 M (-9.1% vs. -1.7% BS(e) and +3.0% consensus);
Net Profit: € 24.0 M (0.0% vs. +12.9% BS(e) and +25.0% consensus);
3Q'19 vs. 2Q'19 Results
N.I.I.: € 116.0 M (0.0% vs. -0.5% BS(e) and -0.9% consensus);
Total Revenues: € 159.0 M (-15.4% vs. -14.1% BS(e) and -12.8% consensus);
Operating Profit: € 60.0 M (-35.5% vs. -30.2% BS(e) and -26.9% consensus);
Net Profit: € 24.0 M (-53.8% in 2Q'19 vs. -47.9% BS(e) and -42.3% consensus);
The 3Q’19 results came in below expectations, with Operating Income falling by -9% vs. 3Q’18 (vs. -2% BS(e) and +3% consensus) and Net Profit decreasing by -54% (around -10% vs. expected) due to a negative slippage in the headline for Other revenues/expenses (€-11 M vs. €-3 M expected), 60% of which would be due to one-off effects.
Excluding this impact, performance would have been in line with expectations, with a better performance in core revenues vs. a slight increase in costs. This is evidenced in NII, which rose by +0.9% vs. 3Q’18 (vs. +0% expected), and fee revenues, which grew +0.7% (vs. -1% expected). On the negative side, however, operating costs rose by +3.5% vs. 3Q’18 (around +2% expected). That said, LBK has made a slight cut to its NII guidance, which now stands at levels of +3% in FY2019 (vs. mid single-digit growth previously and +3.2% in 9M’19).
As expected, LBK continues to grow more than the sector, but with activity levels slowing (-1% vs. 2Q’19 in lending excl. public administrations; +3% vs. 3Q’18), especially in mortgages, where new loan production has fallen in 3Q’19 (-30% vs. 3Q’18), which can be attributed to the new mortgage law. Despite this, LBK maintains its guidance for new loan production’19 of €~1.8-1.9 Bn, which we see as demanding (€ 1.17 Bn accumulated through 9M’19).
Nothing new in loan quality, with the CoR ratio at 25bps (in line with expectations) and a slightly slower pace in NPA reduction, which is expected and can be attributed to the seasonality of the summer period. The NPL ratio improved by 20bps (to 3.9% vs. the guidance’19 of ~3%) and the NPA ratio improved by 80bps (to 9.8% vs. the guidance’19 of below 8%). Likewise, we think the reduction target is ambitious, although we expect it to come with portfolio sales as well.
CET1 stands at 13% (+20bps vs. 2Q’19), underpinned by the organic generation (+11bps) and revaluation of investments (EDP, bonds; +31bps), which more than offset the inflation in RWAs stemming from the growth in financial investments/lending (-20bps).
Despite the fact that the divergence from expectations is due to one-offs, we have seen a slowdown in activity, and while it is not worrying, we think it could hurt the share price, where we expect a negative reaction. BUY. T. P. € 0.49/sh. (upside +61.40%).