UBS has improved the objective prices of Spanish domestic banks and has also raised the recommendation to two of them: Sabadell and CaixaBank, which are now buying. “Spanish domestic banks have had a strong start to the year, rightly seen as clear beneficiaries of the ECB’s bullish turn, which has caused a sharp hike in rates/yields in recent weeks,” explains UBS in a report on Spanish domestic banking.
Therefore, the Swiss investment bank, aware of these movements in the shares “erode part of their previous discount, adopt a more positive view and do not believe that current share prices take into account rate hikes, except for Bankinter.
UBS had a target price of 0.72 euros for Sabadell, which has improved to 1.25 euros, which represents a potential revaluation of 38% compared to the current listing prices of the financial institution. Sabadell shares reflect this improvement in the valuation and recommendation by UBS with increases in the Stock Market of more than 3%, which make them the most bullish of the Ibex on a day in which the index is trading in tables.
In the case of CaixaBank, the recommendation also goes to buy from neutral and the target price to 4 euros from 2.8 euros, which implies a potential of 23%.
For Unicaja, UBS opts to maintain the buy recommendation and the target price rises from 1.2 to 1.5 euros and the upside potential is 50%. In the case of Bankinter, the Swiss investment bank improves the target price from 5.2 to 5.9 euros and reiterates its neutral advice.
Citi bets on Bankinter and Sabadell
The American investment bank Citi investment bank revised the valuations for Bankinter and Sabadell at the beginning of the week. For the former, the 12-month target price is from 5.4 to 6.35 euros, while for the latter, it improves from 0.75 to 1.05 euros.
In the case of Bankinter, Citi sees a revaluation potential of 9% compared to current listing prices. In addition, the investment bank improves its earnings per share forecast for the Spanish bank for the period 2022-25, increasing an average of 12%.
“We update the estimates and the target price for the ECB rate hikes (according to the forecasts of our economists), with an ECB deposit rate that will reach 1% in 2025,” the experts explain in their latest report over the bank.
Citi points out that Bankinter – for which they have a neutral recommendation – is one of the best positioned banks in Spain within the high-end retail and private banking market. The quality of the assets is also one of the best. But they believe that the market has fully appreciated the strength of the Bankinter franchise.
As for Sabadell, Citi updates its estimates and target price to reflect the ECB’s rate hikes (in line with its economists’ forecasts), with an ECB deposit rate reaching 1% in 2025. The analysis firm raises Sabadell’s target price at 1.05 euros, which represents a potential of 16% compared to current listing prices.
“As a result, our EPS forecasts for 2022-24 increase by 20% on average,” explains the investment bank in a report in which it highlights that “although the core of the Spanish franchise is relatively strong, the pandemic may give rise to to poorer asset quality compared to its peers (especially SMEs, where Sabadell is traditionally stronger).”
However, they note that the new management team is starting to turn things around, which could provide a lift to shares.
Among the possible risks for Sabadell, for which they have a neutral board, Citi points to the macroeconomic environment since “a recovery in real GDP growth and employment in Spain that is weaker than expected could cause the stock to fall below our target price.