During 1Q17 Spanish Caixabank finished the integration with Portuguese BPI reporting net attributable profit of €403 million, up 47.9% year on year. This resilient stream of revenues coupled with good credit quality are some of the reasons for BBVA’s analysts bet on the stock. They also highlight its better fundamentals, its limited downside risks; and a valuation that offers potential value and upside risks for sticking to their positive stance on CaixaBank and keeping it as their preferred name within the sector.
As BBVA’s expert Silvia Rigol explains the bank has better fundamentals “as its unique business mix offers diversification away from the pure banking activity”. Moreover about 20% of its core revenues come from insurance.
This has allowed the bank to keep its recurrent revenues fairly stable and it should continue supporting resilient results (CAGR 16 – 19e +6% for core revenues vs. +2% expected for the sector).
They also see limited downside risks as concerns from its exposure to Angola and Repsol could be offset by a resilient top line which will remain supported by an increasing contribution from insurance and fee – intensive products , coupled with less dependence on non- controlling stakes. Moreover, its cost base is well – adapted to its intensive structure and provisions from NPLs and the OREO portfolio are less a concern .
Therefore, experts maintain their outperform rating for Caixabank even though “the valuation could look stretched”: P/NAV 18e 1.1 6 x vs . 1x for the sector.They see upside potential to their new valuation of 4.7 euros per share as well. Rigol summarises:
We think this target price is justified for a bank with a return of 9.6% in 2018e (vs. 7.5% for the sector in the same year), a stable stream of dividends yielding 4% and a cost of equity in the region of 8.6 %. Moreover, we believe it would be amongst the banks to benefit the most from increasing interest rates and a further steepening of the curve , taking our TP to EUR5.2/share or c.2 1 % above current market prices in a bull case scenario.
