“So far this year, the behavior of financial stocks continues to confirm the existing gap between domestic banking and global banking, with the former having risen in value on average by +13% compared to the latter, accumulating a fall of -15%”, highlights Nuria Álvarez, an analyst at Renta 4, in a report. This better behavior “continues to respond to the greater positive impact on domestic securities of the rate hike (whose expectations have accelerated considerably) and the recovery of the 12-month Euribor to levels of around 1.4% that were not seen since April 2012”.
In fact, BBVA and Banco Santander marked lows for the year in mid-July while the lows for domestic banks occurred in the first quarter of the year, the expert points out. “With the announcement of the banking tax in June, prices fell by -21% on average, -12% global banking vs -25% domestic banking, until July 14, when there was a floor. Since then, the average recovery of financial stocks has been +9.4% (vs. +5.1% for the Ibex), with BBVA, UNICAJA and Caixabank leading the way with double-digit gains”.
In this environment, “the benefits in income from the rate hikes, despite the impact of the tax that we estimate at -15%/-20% less net profit, we consider that they are greater than the potential risk of an increase in delinquency that forces entities to allocate more provisions”, believes Álvarez.
One factor to take into account is that “the sensitivity of the net interest income” to a rise in interest rates of 100 basis points is in double digits 12 months ahead, “on average in a range between +10%/+15 %”. “Added to this is the positive effect of the rebound in TIRes, which allows for a greater contribution from fixed-income portfolios, a contained retail liability cost where tension is not appreciated, and the savings that will come from not having to pay for liquidity on the balance sheet. (at max levels currently).”
In the short term, “if the market is excessively negative with the macroeconomic environment, and begins to discount a stronger and more lasting recession, we consider that the prices could show falls”, warns the Renta 4 expert, “in the face of the fear of high risk costs that could significantly reduce the generation of net profit and jeopardize the fulfillment of the objectives of the strategic plans”.
“In a base scenario where the expectation of a mild recession is maintained, despite the fact that we may witness some downward revision of the macroeconomic forecasts for 2023 as a consequence of a more complex inflationary environment, the potential growth of income should be enough to face higher costs and a certain rebound in provisions within the usual dynamics in a context of recession”.
Renta 4 bets
For the Renta 4 expert, the better relative performance of domestic banks compared to global banks should be maintained, “as long as the market continues to discount a mild recession scenario.”
Within the domestic banks “we opted for Caixabank”. “Revenue growth expectations and improvement potential, supported by a mortgage profile of the credit portfolio and the insurance business, with levers that are not included in the Strategic Plan, such as insurance revenue synergies and the recovery of the Euribor to 12 months”. “With a RoTE >10% 2023 R4e and attractive multiples, PER 2023e 6.9x and P/VCT of 0.7x, the stock has a dividend policy that leads us to a high estimated RPD of 10% for 2024. If we assume that the price should adjust to the VCT, we would be talking about a potential >+50% taking the VCT to 2023e of 4.56 euros per share”.
Among the global ones, “we would opt for BBVA, which has a better risk profile and better coverage management, with less exposure to business banking, greater capital strength, visibility of capital generation (around 1,500 million euros in the next 3 years ) and a more attractive shareholder remuneration policy”. Likewise, Álvarez highlights the “better behavior of Mexico against Brazil”, and that “the risk of Turkey is limited”.
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