Jefferies | Despite the continued strength of our top Iberian pick, Caixabank (CABK) (shares up 28% in the last six months), our thesis remains largely unchanged: Caixabank is one of Europe’s most successful cases of structural growth and profitability, benefitting from the opportunity to invest capital in areas of high RoTE growth. We continue to see value in the shares today, with a P/E ratio of less than 10 in 2028, and our earnings are 7% above forecasts, with further upside potential due to macroeconomics and politics. We maintain our Buy recommendation and target price of €13.2 per share.
Profitability has not yet peaked. In its FY2025 results, CaixaBank reiterated that RoTE should continue to improve. We expect RoTE of 18% in 2026, some 50 basis points above 2025, even though 2026 will be a transition year with some pressure on margins and high costs related to digital investment. Beyond 2026, we forecast a RoTE of 19.7%/21% in 2027/2028, supported by improved net interest margin and efficiency gains.
Other factors favourable to net interest income include ALCO and deposit coverage. Customer margins should stabilise by the end of the first half of 2026, with some room for expansion until the end of the year thanks to the positive effects of the combination, given the higher growth of higher-margin corporate loans compared to mortgages. Another favourable factor for net interest income comes from the upward revision of interest rates on CABK’s low-yielding ALCO portfolio and structural deposit coverage. For the period 2026-2028, we estimate positive net interest income drivers of €450 million and €360 million from structural and ALCO hedging, respectively, compared to the net interest income execution rate in the fourth quarter of 2025. Detailed net interest income model available upon request.
Upside risk to 2028 earnings due to the banking levy. Our 2028 valuation conservatively assumes that the levy will continue in its current form indefinitely, costing CABK approximately 10% of annual earnings. The current format of the tax expires in 2027. Although we believe it is unlikely to be repealed entirely, a redesign seems possible, given two key issues: the progressive structure of the tax, which disproportionately penalises large operators, and its narrow base (it excludes major international operators that only conduct corporate transactions). Given the victories of the conservative PP in recent regional elections and the PP’s stated opposition to the current tax, we see some scope for a redesign.
We maintain our Buy recommendation for CABK; target price of €13.2. Following the fourth quarter, we have increased our earnings per share forecast for 2026 in LSD, but we have raised our earnings forecasts for 2027 by 10%, as we anticipate stronger growth. Overall, we are in line with the consensus for this year and next, but 7% above for 2028, thanks to an improved net interest margin. We are raising our target price by €3.2 to €13.2; approximately 40% of the increase is explained by a lower cost of capital of 100 bps (to 10%), another 40% by the increase in earnings and the rest by the shift in valuation to 2028.
Assessment: According to our figures, CABK is trading at 11 times the forward P/E for 2027 or 2.2 times the forward PTNAV for 2026, with a RoTE of 21% in 2028 (compared to EU banks, which are trading at 10 times the forward P/E for 2027 or 1.7 times for a RoTE of around 17%). The double-digit PER multiples of EU banks are not cheap by historical standards, but in our view they are reasonable given the sustainability and predictability of current earnings, capital investment opportunities in areas of high RoTE growth, still attractive capital returns (7% per annum between 2026 and 2028) and additional options on the macroeconomic and political front.
