Santander forecasts strong profit in 2009 |
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| Economy | |
| Written by Roberta Murray | |
| Monday, 22 June 2009 | |
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Broker advises investors to buy Santander stock.
The owner of Abbey and Alliance & Leicester in the UK, Santander, has said they expect profits in 2009 to be similar to those of 2008. According to the brokers the bank’s management does have a habit of making profit forecasts at these events and did not disappoint, issuing expectations above consensus. Non Performing Loans (NPLs) are expected to reach 3.5% in 2009 and peak in 2010 indicating the above figures which already imply a slowing rate of acceleration of net NPL formation. During 2008, the NPL rate had been rising at 20-30bp per quarter but then accelerated to 50bp per quarter in 1Q09, reaching 2.71%. The expectation of 3.5% by end-09 implies a net formation rate falling back to c.30bp per quarter says Collins Stewart, indicating the market is already discounting an NPL peak in 2010 but Santander management did not quantify it. Management forecasts similar profits in 2009 as seen in 2008. This time last year, management forecast c.€10bn of profits – the final outturn was just €8.9bn, which is lower, but in a year quite as dire for bank profitability as 2008, this was one of the smallest “misses” in the sector. Management forecasts prior to 2008 were generally very good. Consensus now is forecasting €7.8bn (as are we) of net profit for 2009, implying a c.12% upgrade is required to match the €8.9bn generated last year. According to Collins Stewart consensus dividend expectations appear to need to rise as management again reiterated its guidance for a 50% payout ratio, paid in cash. This implies a flat dividend on 2009 in absolute terms but obviously lower in “per share” terms, due to the rights issue. Collins Stewart forecast of 54cents is based on this and is well above the 48cents that consensus is currently discounting. Collins Stewart said the following on their call for a Santander 'buy' call: "Recent strong outperformance justified but more a LT Buy now. The stock has risen 12% since our initiation on 2-Jun-09, against a flat SX7P index and broadly flat BBVA. The stock is now trading at 1.4x 2010E tangible book value (sector: 1.2x) but as focus moves back to PE-based valuations as banks recover, SAN is on just 7.2x mgmt’s expected 2009 earnings. This is a discount to the sector on c.8-9x. Major IB upgrades are unlikely to feature with SAN, meaning short-term momentum may tail off. However, it remains a strong bank with better 2010 growth features than most peers and therefore a long-term BUY, in our view."
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