Banco Santander regains third place in Europe by profit

Banco Santander will regain third place for profit this year among the major European financial companies. It will return to profits this year after starring in historic losses in 2020 -of 8,771 million euros- after making provisions for a possible rebound in non-performing loans due to Covid.

The consensus of analysts expects the entity to reach 7,744 million euros at the end of December and to return to beat 8,000 million euros starting in 2022. However, the pandemic has meant that the firm says goodbye, for the moment, to exceed the 9,000 million euros of net result that the market had been anticipating for years. The forecasts for Banco Santander have increased by more than 40% for this year since the first presentation of quarterly results charged to 2021.

What’s behind? The first uncertainty that has already largely been cleared is the possible rebound in the delinquency that has not surfaced in the bank accounts -3.18% closed the default rate for the Group in September, in Spain, at 5.99% -. This is linked to the strength shown by the bank, with a excess capital first level (the so-called CET1 fully loaded) of more than 300 basis points over the minimum required -11.86% versus 8.86%, as published by the entity-.

Furthermore, banking is on its way to becoming profitable again. The cost effectiveness on capital will touch 9% at the end of the next few years, according to forecasts, although they could have fallen short. In the absence of a quarter to close the year, Santander obtained a ROE of 10.18% in the accumulated of the first nine months, double the 5.32% of the same period last year. His ROTE goes to 12.61%.

However, the capitalization of the entity on the stock market is not reflecting these forecasts. Your discount on the value of your equity is still close to 40%. If it meets the expected ROE or maintains levels of 10%, its capitalization should be adjusted to 1 times book value following the classical theory. This would imply for Santander trading at 5 euros and a potential upside of 68%.

Dividend

The last catalyst for Banco Santander has been the return to a dividend of more than 6%, leading the sector in Spain. The entity has decided divide into two equal parts their remuneration to the shareholder, between a cash payment and two share buybacks.

On November 2, Santander paid 0.0485 gross euros as a dividend and it will take close to 1.5% of its capital until December. Together they are equivalent to a total dividend of 0.0935. The same amount is expected for next spring, with which the total payment would amount to 0.1904 euros, according to analysts.