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UNICAJA: 3Q’20 RESULTS (ANÁLISIS BANCO SABADELL)

3Q'20 vs. 3Q'19 Results
N.I.I.: € 150.0 M (+4.2% vs. -1.4% expected and +1.4% expected by the market consensus);
Total Revenues: € 232.0 M (-20.3% vs. -23.0% expected and -21.6% expected by the market consensus);
Operating Profit: € 92.0 M (-33.8% vs. -42.4% expected and -39.6% expected by the market consensus);
Net Profit: € 16.0 M (-62.4% vs. -59.6% expected and -55.4% expected by the market consensus).
3Q'20 vs. 2Q'20 Results
N.I.I.: € 150.0 M (+9.5% vs. +3.6% expected and +6.6% expected by the market consensus);
Total Revenues: € 232.0 M (-15.3% vs. -18.2% expected and -16.8% expected by the market consensus);
Operating Profit: € 92.0 M (-31.3% vs. -40.3% expected and -37.3% expected by the market consensus);
Net Profit: € 16.0 M (+6.7% in 2Q'20 vs. +14.7% expected and +26.7% expected by the market consensus).

The company has generated € 16 M of Net Profit (-63% vs. 3Q’19), slightly below expectations (€ 19 M BS(e ) and consensus) due to higher amortisations and provisions. Operating Profit fell by -34% vs. 3Q’19 (and around vs. -40% expected) due to lower trading revenues and higher non-core revenues, both factors were already expected. Core revenues performed well: NII improved by +4.21% vs. 3Q’19 (and vs. around +1% expected) and +9.5% vs. 2Q’20, fuelled by lower financing costs given the expiry of around € 600 M of deposits remunerated at 4% since June. Furthermore, the margin is underpinned by the larger contribution from the ALCO portfolio, which grew by €~2 Bn on the quarter. On the negative side, lending remains weak (-1% on the year; -3% vs. 2Q’20), although asset yields remain constant vs. 2Q’20, despite the pressure from the Euribor. On the fee revenues side, there was a -1.7% drop vs. 3Q’19 (and vs. the expected drop of around -6%), but we see +10% recovery vs. 2Q’20 thanks to the increase in transactions and in banking fees.
Good performance also in operating costs excl. amortisations, which were reduced by -9.5% vs. 3Q’19 (and vs. -6% expected), with a -16% drop in administrative costs. That said, the company increased amortisation levels by € 2 M (~20%), which in our view would be due to accelerated write-downs. As regards credit quality, the NPL stock continued to decrease (by -2% vs. 2Q’20), as did the underlying CoR (13bps in 3Q’20 vs. 15bps in 2Q’20). However, UNI has registered a total CoR of 91bps on the quarter, in line with its guidance’20 of ~90bps (and vs. 85bps BS(e)). The coverage ratio came in at 66%.
In Capital, CET1 improved by around 30bps to 14.7% thanks to RWA reductions given the lending slowdown. With all this in mind, the results were unsurprising, with the underlying performance slightly better than expected. We expect a positive reaction on the share price. BUY. Target Price: Under Revision.