Banco Santander SA

Banco Santander SA (LON: BNC) is a FTSE main market listed multinational financial services entity. It is also a leading retail and commercial bank in Spain.

Rationale for Valuation – BUY at GBX 244.75

• Credit Rating Revision: The S&P Global has raised the long-term Issuer Credit Rating on Banco Santander to 'A+' from 'A'.
• Growth Drivers: BNC witnessed solid customer activity and volume growth across all regions and businesses in 9M FY21. The strong digital adoption brought efficiency and increased customer satisfaction.
• Guidance: BNC is confident of achieving 13-15% medium-term profitability target, on the back of excellent delivery across all businesses.
• Technical Indicator: From a technical standpoint, the current market price is trading above the 20-day EMA (GBX ~240.99), while the MACD line has given a bullish indicator against the signal line, supporting the positive price potential.

Key Risks

• Resurgence of Coronavirus: The surging Omicron COVID-19 cases triggered tighter curbs and threatened to swamp the global economy into the New Year.
• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.3% during Q3 FY21, which remained merely lower-than-expected growth of around 1.50%.
• Macroeconomic Risk: The early tapering of assets by the US Federal Reserve can strengthen US Dollar, can cause equity market volatility, and other financial risks.

Financial Highlights (for the nine months ended 30 September 2021, as on 27 October 2021)

 (Source: Company Website)

• Income: During 9M FY21, the Group earned €34.6 billion in total income, up 8% year-on-year in constant euros.
• Profitability: The underlying profit before tax was €11.4 billion in 9M FY21 (+74% in constant euros).
• Financial Position: The Group’s fully loaded CET1 capital ratio rose 15 bps in the last quarter to 11.85%.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Book Value Approach (FY21) (Illustrative) 

 Conclusion 

BNC delivered a solid top line growth across all regions and businesses in Q3 FY21 as well. The US and UK divisions were particularly robust, and it reported a significant rise in loans and deposits. The investment digital framework has further accelerated the efficiency and profitability; and therefore, BNC is well-positioned for future growth. The stock made a 52-week High and Low of GBX 302.14 and GBX 210.75, respectively. 

Based on the increased income, strengthened capital position, strong digital adoption, and favourable valuation conducted above, we have given a “BUY” stance on Banco Santander SA at the closing price of GBX 244.75 (as on 30 December 2021), with lower double-digit upside potential based on 0.65x Price/NTM Book (approx.) on FY21E Book Value per share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

*Dividend Yield may vary as per the stock price movement.

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