It’s BBVA’s turn. On July 31, it will present its results for the end of June, just after Sabadell – which has received a hostile takeover bid from the bank chaired by Carlos Torres – announced record profits and the highest dividend since 2010, credentials with which it insists on claiming its sole future. The half-year results projections are quite favorable for BBVA, although the accounts will once again be an opportunity to test the bank’s strength in its aspiration to acquire Sabadell. BBVA shares arrive at the event with a rise of 22% in 2024 and 11% since mid-June, but they have still not recovered the level prior to the announcement of its hostile takeover bid. The stock has still lost 8% since its interest was announced at the end of April, and has traded most of the time since then below 10 euros.
Barclays has its eyes on BBVA’s business in Mexico, where it estimates that “profits could slow down quarterly.” On the other hand, it believes that “it will continue to accumulate excess capital, since the acquisition prevents it from announcing extraordinary distributions.” BBVA is offering Sabadell shareholders an exchange of one of its shares for every 4.83 of the Catalan entity. Compared to April’s quotes, this represented a 30% premium, which has however been diluted sharply months later.
Barclays also expects “Spain’s results to grow significantly in the second quarter (17%) and year-on-year (25%)”, once the effect of the tax on the sector for extraordinary profits, for which BBVA had to pay out 285 million, has been discounted.
Barclays forecasts a 12% growth in net interest income (NII) for the Spanish bank in the second quarter, reaching €6.458 billion, and CET1 at 12.90%, compared to 12.99% a year earlier. “We expect NII to fall 0.8% compared to the first quarter due to the slowdown in loan performance across all geographies and the lower contribution of CPI-linked loans in Argentina,” the experts point out.
Jefferies has made very similar calculations, with a 12% increase in NII and a CET1 ratio of 13%. In general business terms, it highlights “the unbeatable positioning in the Mexican market both in terms of scale and profitability, the attractive structural profitability in Spain and the competitive advantage in terms of digitalization of the activity; we believe that the bank is capable of competing with fintech/disruptors in emerging markets,” they explain.
BBVA’s attributable net profit will rise by over 17% in the second quarter, according to Renta 4 estimates. “We do not expect any changes in guidance or any news regarding the takeover bid for Sabadell. We will be attentive to the message on Turkey, which in a context of improving inflation should maintain its positive bias, and on the expected evolution of the cost of risk in South America, which may allow us to rule out additional deteriorations in the future projection.”
Regarding the potential risk of BBVA in emerging countries, which is being pointed out by part of the market and which may have been one of the motivations for the offer for Sabadell, Morningstar states that “there are several mitigating factors. Firstly, BBVA tends to maintain a dominant position in the countries in which it operates, with significant market shares in low-cost demand deposits, which supports profitability; it is a retail and commercial bank with limited exposure to volatile investment banking activities, and diversification across different geographies reduces profit volatility, and BBVA’s profits have historically been more stable than those of most of the European banks we cover.”
Looking further ahead, Goldman Sachs is confident that “investors will focus on the path forward for NIM [margen neto de intereses] In Mexico and Spain, the guidance on a normalised execution rate for Argentina after the depreciation of the exchange rate and the capital distribution plans”. In short, the market expects solid accounts that do not promise to alter the current struggle to take control of Sabadell.
Adjustments to remuneration and positive advice
Outlook. Barclays does not expect BBVA to carry out further share buyback programmes this year, as “it is unlikely, given the acquisition context”. Therefore, it has lowered its payout forecast from approximately 60% (combining share buybacks and cash) to 50% (all remuneration in cash) for 2024 and will increase it to 75% for the next two years. The bank offers a coupon of 5.49% at the current price.
PotentialThe market maintains a favourable opinion of BBVA. 48% of the recommendations collected by Bloomberg are for buying and 44% for holding; the remaining 8% are for selling. The target price is 11.51 euros, which leaves the share price with a potential of 15%. Firms such as Citi, Jefferies and JB Capital place it above 12 euros.
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