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LIBERBANK: 4Q’20 RESULTS AND T.P. INCREASE (ANÁLISIS BANCO SABADELL)

4Q'20 vs. 4Q'19 Results:
N.I.I.: € 128.0 M (+5.8% vs. +3.3% BS(e) and +3.3% consensus);
Total Revenues: € 137.0 M (-3.5% vs. -7.7% BS(e) and -4.9% consensus);
Operating Profit: € 51.0 M (-3.8% vs. -32.1% BS(e) and -22.6% consensus);
Net Profit: € -18.0 M (€ 15.0 M in 4Q'19 vs. € -8.0 M BS(e) and € -11.0 M consensus);
4Q'20 vs. 3Q'20 Results:
N.I.I.: € 128.0 M (+2.4% vs. 0.0% BS(e) and 0.0% consensus);
Total Revenues: € 137.0 M (-19.9% vs. -23.4% BS(e) and -21.1% consensus);
Operating Profit: € 51.0 M (-33.8% vs. -53.2% BS(e) and -46.8% consensus);
Net Profit: € -18.0 M (€ 18 M in 3Q'20 vs. € -8.0 M BS(e) and € -11.0 M consensus);

The company has obtained € -18 M of losses (vs. € -8 M BS(e) and € -11 M consensus) with better performance in NII (+6% vs. 4Q’19 and vs. +4% expected), stemming from excellent commercial activity (+3% in retail lending vs. 3Q’20; +2.6% in assets under management) and from the yield in new production being maintained. There was nothing new in the rest of revenues, with Total Revenues falling vs. 4Q’19 due to lower trading revenues and a larger contribution to the Deposit Guarantee Fund, whereas fee revenues were in line, showing a +6% increase vs. 4Q’19. Costs performed better than expected (-6% vs. 4Q’19 and vs. +6% expected) due to the seasonality in 4Q’20 in administrative costs, which we do not think can be extrapolated to the coming quarters.
Underpinned by costs, Operating Income performed better than expected (-4% vs. -23% consensus and -32% BS(e)), but this was offset by higher provisions (4Q’20 CoR reaching 59bps vs. 55bps expected, in line with the guidance). NPL stock remained flat, but €~400 M was reclassified to Stage 2 (around +30% vs. 3Q’20), which the bank sees as cautious. We expect more details to be given in the conference call. There was also a larger increase in general provisions than expected (€ -13 M vs. €~8 M BS(e)) due to an adjustment in employee pension funds, with both of these factors explaining the higher net losses than expected.
No surprises in capital, with CET1 standing at 14.4% (+30bps vs. 3Q’20), in line with expectations. We expect a neutral reaction to these results, with the key being the guidance’21 in CoR and the details to be given on loan quality (conference call 11:00 CET).
We update our Net Profit’21-22e estimates, cutting them around -27% and -14%, respectively, in view of the delayed recovery from the pandemic, which means passing the NPL peak to 2H’21-1H’22 (previously 1H’21) as the measures to underpin the economy are extended. In this regard, and despite an average increase in our revenues estimates of around +2%, we raise our provisions estimates by around +30% over the next 2 years, meaning LBK’s RoTE will remain at ~3% over the period. We roll over our T.P. to Dec’21 (vs. the previous Dec’20), and given the high CET1 level we now assume some excess capital in the valuation (>13% CET1), whereas previously we did not. These two aspects more than offset the aforementioned cut to our estimates, with our T.P. as of Dec’21 standing at € 0.28/sh. (and vs. € 0.23/sh. previously), yielding around +30% upside.
That said, until the merger with Unicaja is executed (expected for late 1H’21), both stocks will be arbitrated according to the exchange ratio announced (0.3609 LBK shares x 1 UNI share), which is reflected in the current share price. According to our numbers, the merger will mean an accretive impact of +61% on Unicaja’s EPS’23, and thus Unicaja’s post-merger T.P. would stand at around € 1.20/sh. In the case of LBK, bearing in mind the exchange ratio, this would lead to a theoretical valuation of €~0.43/sh. post-merger.
Since the beginning of the year, Unicaja and LBK have been the worst-performing bank stocks, falling -19% YtD (vs. -4% IBEX and around -2% for domestic banks), once again trading near last year’s lows. We chalk this poor performance up to the perception (prior to the merger’s announcement) of the apparent lack of harmony between the two management teams, which the market has interpreted as an added execution risk, and which we do not agree with. Taking into account the punishment received this year, this means upside of more than +100% for LBK pro forma post-merger. Thus, in our opinion the stock is an opportunity with low associated risk, given the merger, which we have seen on very few occasions in the banking sector. We reiterate our BUY recommendation.