Banco Santander has delivered €4.61 billion in attributable profits for the first nine months of 2016, down 22.5% from the same period in 2015 due to the impact of extraordinary items announced in Q2 of this year and Q2 of 2015. Excluding extraordinary items and exchange rate movements, profits grew by 8% year on year to €4.97 billion.
In the third quarter alone, the bank delivered attributable profits of €1.69 billion, up 1% when compared to the same period last year. Excluding the impact of currency depreciation against the euro, attributable profits in Q3 were 7% higher than the same period last year.
According to Citi Research the stock “should be up 2% vs SX7E on a good set of numbers.” They also add:
Santander continues to deliver on tangible book value growth (+1 % qoq ), ROTE (11.2 % in Price (25 Oct 16) € 4.44 9M16), and capital (+11 bps qoq). The bank reported 3 Q 16 net underlying profit of Target price € 4.60 €1.7bn, +9% vs cons (+12 % vs Citi) driven by better NII, fees , trading income, costs Expected share price return 3.6% and other items. NII was +1 % vs cons while gross opera ting profit was +4 % vs Expected dividend yield 5.0% cons . B3 FL CET1R at 10.47% was +11 bps qoq and – 9 bps vs Citi.”
Banco Santander Group Executive Chairman, Ana Botín, said: “We have delivered strong performance during the first nine months of 2016, earning the loyalty of a further one million customers, while maintaining our position as one of the most profitable banks in our peer group.
“While the low interest rate environment within developed economies remains a challenge for parts of our business, the resilience of our business model has allowed us to continue to deliver, with our Latin American and consumer finance franchises growing particularly well throughout the year.
“There continues to be real potential for further sustainable and profitable growth and we are confident that our strategy of earning the lasting loyalty of customers, strong balance sheet, and best – in – class efficiency leave us well positioned to continue delivering for our customers, colleagues, shareholders and communities.
“We continue to grow capital ahead of our goal s while also funding growth in lending and increasing dividends. Dividend yield stands at around 5% . We expect to end 2016 exceeding last year’s profit, enabling us to increase our dividend per share and earnings per share.”
Citi uses a two – stage dividend discount model (DDM) to value Santander with the present value of 2017 – 18E dividends and a terminal value assuming an ROE of 8.5% (8.6% on a basis of 11% B3 FL CET1R) and ROTE of 11.8%.
We assume a 10.3% cost of equity for the group. We cross – check the valuation using: (1) justified price to book valuation on a segment basis, (2) comparable P/E valuation relative to the banks sector, and (3) comparable P/E valuation relative to Santander’s historical trading range and growth prospects.
Analysts derive a target price for Santander of €4.60.
