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LIBERBANK: 4Q’19 RESULTS (ANÁLISIS BANCO SABADELL)

4Q'19 vs. 4Q'18 Results
N.I.I.: € 121.0 M (+3.4% vs. +0.4% expected and +0.4% expected by the market consensus);
Total Revenues: € 142.0 M (+21.4% vs. +18.8% expected and +17.9% expected by the market consensus);
Operating Profit: € 53.0 M (+165.0% vs. +110.0% expected and +105.0% expected by the market consensus);
Net Profit: € 15.0 M (+650.0% vs. +280.0% expected and +150.0% expected by the market consensus);
4Q'19 vs. 3Q'19 Results
N.I.I.: € 121.0 M (+4.3% vs. +1.3% expected and +1.3% expected by the market consensus);
Total Revenues: € 142.0 M (-10.7% vs. -12.6% expected and -13.2% expected by the market consensus);
Operating Profit: € 53.0 M (-11.7% vs. -30.0% expected and -31.7% expected by the market consensus);
Net Profit: € 15.0 M (-37.5% in 3Q'19 vs. -68.3% expected and -79.2% expected by the market consensus);

The company has released 4Q’19 results above expectations in all business lines with operating quality. We highlight the growth registered in NII (growth in performing loans accelerates to +1.7% vs. 3Q’19 and vs. +1.1% seen the previous quarter). Additionally, the customer spread rose slightly (+1.60% in the 4Q’19 vs. +1.59% in 3Q’19). Commercial dynamism explains the ~+9% growth in recurring fee revenues vs. 3Q’19 thanks to product penetration and another record quarter in assets under management (investment funds).
The most positive reading comes from the cost structure, which fall by around -10% vs. 3Q’19 despite seasonality, being partially explained by the personnel downsizing but mainly by the rest of expenses, consistent with the reduction of the banking branch network carried out (-14% in 2019) and the control of expenses below its budget. All of this explains the good performance in Operating Income and the 63.4% cost/income ratio in the 4Q’19 vs. levels closer to 70% expected. With this, the bank is facing more sales of RE assets on the quarter (€ 212 M vs. € 582 M for the full year), which has led to a one-off impairment of € -18 M. Here we recall that LBK has a target of selling between 35-40% of the average stock, and thus in 2020 we could expect some € 400 M of sales (the current stock totals €~1.4 Bn). Despite the effort made, the NPA ratio stands at around 8.6%, slightly above the 8% target’19. CoR came in at 24bps, in line with expectations (25bps), meaning a 3.3% NPL ratio vs. 3% target (and vs. 3.9% in 9M’19).
The FL CET1 ratio remains stable at 13%, although already adjusted for the 38% pay-out announced (18% in buyback already made public in December and 20% in cash unveiled now, which is the same dividend as that of 2018;~4% yield). The share price is climbing +2%, evidencing the operating quality. Conference call at 9:30 (CET). BUY. Target Price: € 0.49/sh (upside 60.02%)