Santander: excessive digital focus, tied to domestic market

Banco SantanderBanco Santander

Alphavalue | During the last decade, Banco Santander has successfully diversified constructing a portfolio of low risk/high growth activities. Although it should guarantee the longevity of the group, it has not translated into profits for smaller shareholders.

 

Digital ambitions create new risks. The financial objectives of the corporate management seem too optimistic, but enthusiasm is not a crime. Perhaps the main disappointment lies in the fact that the performance of the shares to a large extent follows Spanish issues. Although the business focuses on retail and commercial banking, none of the principal markets, in which the group enjoys a critical mass, represents more than a quarter of the profits.

 

The Group’s Brazilian operations in 2018 confirmed that they are again in a position to drive future growth and increase profits.

 

The exposure in the UK, developed through various acquisitions, is high quality, as shown by the results of the Bank of England’s stress tests.

 

The acquisition of Banco Popular in June 2017 again illustrated the strong opportunism made possible by the group’s risk culture and operational skills. As usual, the group moved fast to eliminate the risks of its position and to guarantee the franchise acquired through the sale of a majority holding in the housing assets to Blackstone. According to the plans of the corporate management, increased profitability will be driven by the greater weight of more profitable operations in Latin America and a general improvement in profitability in all the group’s geographical areas driven mainly by digitalisation.

 

Santander’s stock price has fallen -15% yoy, in line with the average for banks. The shares have traded almost constantly at a discount relative the sector, and the rebalancing of the group’s businesses in favour of the mature market with the expansion in the UK has made no difference.