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

4Q'20 vs 4Q'19 Results
N.I.I.: € 151.0 M (+6.3% vs. +6.4% expected and +5.6% expected by the market consensus);
Total Revenues: € 195.0 M (-12.6% vs. -17.8% expected and -12.1% expected by the market consensus);
Operating Profit: € 52.0 M (-28.7% vs. -41.0% expected and -25.9% expected by the market consensus);
Net Profit: € 0.0 M (n/a vs. n/a expected and n/a expected by the market consensus);
4Q'20 vs 3Q'20 Results
N.I.I.: € 151.0 M (+0.7% vs. +0.7% expected and 0.0% expected by the market consensus);
Total Revenues: € 195.0 M (-15.9% vs. -20.9% expected and -15.5% expected by the market consensus);
Operating Profit: € 52.0 M (-43.5% vs. -53.3% expected and -41.3% expected by the market consensus);
Net Profit: € 0.0 M (n/a in 3Q'20 vs. -82.5% expected and -50.0% expected by the market consensus);

The operating performance was fully in line with expectations, with fee revenues faring better (+10.5% vs. 4Q’19 and vs. ~-0.5% expected) and NII slightly better (+0.9% vs. +0% consensus). No surprises in the rest of revenues, with operating profit falling by -17% (vs. -21% and -16% consensus) due to lower trading revenues, with costs in line (-7% vs. 4Q’19). As regards the commercial activity, the slight recovery in fund management continues (+2.4% in assets under management vs. 3Q’20) and weakness in lending production, at least remaining flat vs. 3Q’20 (-1.6% vs. 2019). Net Profit totalled € 0 M due to higher generic provisions and the higher tax rate.
No news in credit quality, with the CoR’20 being in line (85bps in 2020e; 14bps ex Covid-19 and vs. 2020 guidance of 50-90bps) and the doubtful loans stock falling -5.6% on the quarter (2020 NPL ratio 4.2%; -60bps in 2019).
Lastly, the CET ratio came in at 15% (+30bps vs. 3Q’20) vs. 14.8% expected, fuelled by the reduction of APRS. We expect a neutral reaction, with the 2021 guidance being key (conference call 09:00 CET).
We raise our Net Profit’21-22e estimates by around +6% and 9%, respectively, with better expectations on the operating level although more cautious in CoR in view of the delay in the resolution of the pandemic. In this regard, and despite an average revision in Operating profit of +9%, we raise our provision estimates by ~+30% over the next two years, meaning that UNI’s RoTE will remain at around 3-3.5% over the period. We carry out the roll-over of our T.P. through Dec’21 (vs. Dec’20 previously), with an upgrade of around +11% to € 0.72/sh. (and vs. € 0.65/sh. previously), yielding +25% upside.
That said, until the merger with Liberbank 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 UNI’s EPS’23, and thus a T.P. of around € 1.20/sh. or ~2x current trading levels.
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 image (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, which we do not agree with. UNI should deliver in the integration so that its share price gains momentum, although in this regard we believe that in addition to the positive impact outlined (+61% in EPS’23; +250bps in RoTE’23), the creation of a larger bank with higher free float (>41% expected vs. around 39% currently) should improve the stock’s liquidity, which is now one of its main weaknesses. We reiterate our BUY recommendation.