The rises registered in the first sessions of the year had the banks as clear protagonists. Years of zero rates have taken their toll on the profitability and business of banks. The end of the ultra-lax monetary policies are seen with optimism. With the expectation that rates will continue to rise, investors do not hesitate to take advantage of the discounts that many entities continue to register to enter at attractive prices.
However, finding bargains is not as easy as it was a few months ago. With the pull experienced by banks, entities such as BBVA and CaixaBank have considerably reduced discounts. As of today, both entities are already at 80% of their book value. In other words, their discounts are less than 20%, a situation that contrasts with that registered at the beginning of August, when they exceeded 30%.
Juan José Fernández-Figares, director of analysis at Link Securities, points out that the scenario of rising rates favors the increase in margins and the profitability of banks after years in which Spanish entities, in tune with their European counterparts, they have been destroying value. Although the main international organizations predict a slowdown and even recession, the expert is optimistic and hopes that bad debts will remain under control.
In the case of CaixaBank, the discount reaches 15%, a situation that has not been seen since September 2018, while BBVA (18%) recovers the levels of January 2022, before the outbreak of the war in Ukraine. Despite the recovery, banks are still trading at a significant discount to before the financial crisis, when their returns were much higher. “I do not think that the levels of the stock market multiples that the sector enjoyed then will be reached in a long time, although I do expect an expansion of these multiples in the short and medium term, which will lead to more revaluations of the shares of the entities in that period”, adds Figares.
The experts at Renta 4 move along the same lines. Nuria Álvarez, an analyst at the firm, believes that the rate hikes will continue their course because the ECB still has a lot of work to do and this will have an impact on the improvement of the business and the price of the banks. The expert considers that, with the exception of Bankinter, the rest of the entities still have significant revaluation potential.
With an eye on the coming months, Álvarez believes that in 2023 the focus will be on managing the cost of liabilities. In other words, how the increase in rates is transferred to deposits and loans, the basis of the banking business. This will have a direct impact on margins, multiples that already experienced double-digit increases in the first nine months of 2022.
As the monetary normalization process gains momentum, it is to be expected that the 12-month Euribor will continue to rise. Álvarez considers that this will help the revaluation that the banks have been experiencing to continue beyond 2023. “Except for extraordinary events that may occur, the behavior on the Stock Market should be positive in the year. However, the year will not be exempt from volatility”, remarks Álvarez.
Beyond monetary policy, in the short term the earnings season will be key to verifying whether entities manage to maintain the good tone of recent months. The gaze will be on the guides that they make known, as well as on the eventual provisions to announce to face a possible macroeconomic deterioration at a domestic and global level.
Bankinter, the exception of domestic banking
Without discount. As has been the case historically, Bankinter maintains a premium over other entities. This is because the entity chaired by María Dolores Dancausa has a much higher financial return (ROE). As a result of this process, the bank is not only trading at par with its book value, but is also 25% higher.
bigger discounts. Despite the recovery, Santander continues to offer a 44% discount, levels not seen since last June. For its part, Unicaja, the newcomer to the selective, maintains a discount that exceeds 51%, levels of October 2018, while in Sabadell it reaches 59%, a level that has not been seen since January 2020, before the outbreak of the pandemic. Although to a greater or lesser extent the price of the entities manages to say goodbye to the lows registered after the Great Confinement.
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