Banco Sabadell flew on the stock market this Thursday, which showed it not only to exceed the euro per share, but also to rise to 1.10 euros and close with a stock market value of 6,189 million euros. It is not the first time that the bank takes out the behavior of the action. Last year already ended with a double-digit revaluation. Despite this, Banco Sabadell shares continue to trade below their book value. This circumstance has led the entity to announce a share reward for a total import of 204 million euros. With this movement, moreover, the entity led by César González-Bueno followed in the footsteps of others, such as Banco Santander, BBVA and Caixabank, which have opted for this path to remunerate their assets.
The CEO, César González-Bueno, defended this decision, during the press conference to present the results, stating that “it makes sense when a share trades below its book value”. And it is that the titles of the entity were located at closing on Wednesday, the day before the publication of results, with a discount of 50% of their book value, which stood at 2.03 euros in 2022, despite the increase in net profit for the quarter that it has experienced and the improvement in the interest margin after the rate hikes by the European Central Bank (ECB) and its reflection in the Euribor. Although it is true that the bank has been improving this figure both at the end of 2021, when it ended at 1.92 euros, and with respect to the third quarter of 2022, when it exceeded two euros (2.01 euros).
In fact, despite the vertical rise on Thursday, the bank’s stock market value stands at . However, this figure has been improved, since a year ago it was 10,750 million euros. During his speech, González-Bueno reiterated that this measure will especially benefit minority shareholders, who represent 48% of the total. “Send a message of confidence”, sentenced the director at the press conference to present the results.
Nor should we ignore that, in theory, if the difference between book value and book value is below 1, it means that the share is cheap because the market values the entity below its theoretical book value. In this context, it seems logical that the entity repurchases shares and redeems them. You would not only be buying ‘cheap’ securities (as long as you are not going to destroy value in the coming months), but helping to improve the bank’s notional value per security.
The other incentive is tax. The distribution of a cash dividend entails the payment of taxes in the payment. On the contrary, the tax effects of the repurchase of shares are dilated over time because if they help the price, they only have an impact on the sale of shares, which would be the moment in which capital gains are realized.
Banco Sabadell shares still have a run
The decision to buy back shares is important because it must not be forgotten that Banco Sabadell had been questioned in the past for its position in TSB. In recent years it has undertaken an expansion that has made it the fourth entity in the country, along with its internationalization. At the same time, the entity has also been improving year after year its profit and its ROTE, which has exceeded all estimates, including that of the strategic plan, to close close to 8% in 2022, which also implies getting closer to the cost of capital. And this has been transferred to its political dividend, going from 30% to 40% in the third quarter of 2022 and from there to 50%. Facts that have ended up being reflected in the stock market.
In this regard, it must be remembered that the shares of Banco Sabadell were the big winners on the stock market in 2022. Its titles appreciated 40.89%, while so far this year they appreciated a little more than 27%. And analysts remain confident that the titles continue to rise. In this sense, from Banco Sabadell they expect that for this year the interest margin will continue to grow at double digits due to the appreciation of the credit portfolio, which will experience a certain lag compared to the rise in Euribor, and other items such as the ALCO portfolio (with exposure to sovereign bonds).
In fact, Jefferies raised the target price of the titles a week before the publication of the results, from 1.15 euros to 1.25 euros. Keefe Bruyete & Moods has also raised the target price at the beginning of January, from 0.98 euros to 1.46 euros, while Citi has increased this Thursday, coinciding with the publication of the annual accounts, from 1.22 euros up to 1.52 euros. This has allowed the consensus price target to stand at 1.19 euros, which represents a potential return of 7.2%. Regarding purchase recommendations, 56% of analysts advise holding the stock, compared to 12% who advise ‘selling’.
