Jefferies | Following the third quarter, we have raised our 2026/2027 earnings forecasts for MSD thanks to improved revenues, mainly in Spain and Mexico, and we believe that BBVA (BBVA) is on track to achieve the medium-term targets announced in the first half of 2025. We are 4% above the 2027 earnings forecasts. We believe BBVA will announce a €6 billion share buyback in its 2025 results (subject to ECB approval), well above analysts’ expectations. A stronger recovery in Turkey continues to offer some options. We maintain our Buy recommendation and raise the target price to €21 per share.
Focus on organic growth and medium-term targets. Now that the distraction of Banco Sabadell (SAB) is behind us, we believe BBVA is on track to meet the medium-term targets announced in the first half of the year. We expect cumulative profits of €47.7 billion between 2025 and 2028 (compared to €48 billion implied by the company’s forecast). Within this figure, our estimates take into account better performance in Spain, offset by more conservative figures in Turkey. Mexico is also performing better than the company’s previous forecasts, thanks to a better exchange rate performance, while key dynamics are generally evolving as expected. We believe the group is on track for a RoTE of 24% in 2028.
Downside risks? Manageable. We recognise that there is a risk that the recovery in Turkey and South America (Argentina) could be delayed once again. However, according to our figures, only €1.25 billion of additional profits in 2028 compared to 2024, or around 9% of the Group’s total expected profits for 2028, come from these two countries combined (Appendix 3).
We see upside potential for MSD relative to consensus earnings in 2027, mainly due to improved earnings from Spain and Mexico. We are also slightly above consensus in Turkey, which we believe offers options for shares, as consensus figures do not contemplate a more normalised earnings scenario.
€6 billion extraordinary from SBB? In addition to a final dividend of 57 cents, we also expect BBVA to announce a €6 billion buyback with its 2025 results (or earlier, depending on when ECB approval is received), as the company normalises its CET1 ratio to 12.2% from 13.4% in the third quarter of 2025. We consider this to be a ‘catch-up’ in capital returns, as BBVA has been prohibited from making extraordinary distributions during the attempted agreement with Sabadell. This would bring total distributions for fiscal year 2025 to around €12 billion (around €5 billion in dividends + €1 billion in pending buybacks + €6 billion in announced extraordinary buybacks), or just under 12% of market capitalisation. From 2026 onwards, we expect dividends of €5.3 billion/€6 billion/€6.4 billion until 2028, and a repurchase rate of €2 billion per year (8-9% total annual return on capital) (Annex 1).
The valuation remains attractive for the best RoTE among EU banks. The shares are trading at 1.8 times 2026 PTNAV, with a RoTE of 23.5% in 2027, compared to 1.3 times for the EU banking sector as a whole, with a RoTE of around 16% (Appendix 2) and 35% of market capitalisation to be returned between 2025 and 2028.
