The banks were the clear protagonists of the increases registered in the first sessions of the year. The years of zero interest rates have taken their toll on bank profitability and business. The end of the ultra-loose monetary policy is viewed optimistically. With the expectation that interest rates will continue to rise, investors do not hesitate to take advantage of the rebates that many companies continue To to get in at attractive prices.
Finding bargains isn’t as easy as it was a few months ago, though. With the pull of the banks, companies like BBVA and CaixaBank have significantly reduced discounts. As of today, both companies already have 80% of their book value. In other words, their rebates are less than 20%, a situation that contrasts with the situation recorded in early August when they surpassed 30%.
Juan José Fernández-Figares, analysis director at Link Securities, points out that the scenario of rising interest rates favors margin expansion and bank profitability after years of Spanish companies destroying value in line with their European peers. Although the main international organizations are predicting a slowdown and even a recession, the expert is optimistic and hopes that bad debt will remain under control.
In the case of CaixaBank, the discount reaches 15%, a situation not seen since September 2018, while BBVA (18%) regains the level of January 2022 before the outbreak of the war in Ukraine. Despite the recovery, banks are still trading at a significant discount to pre-crisis levels when their yields were much higher. “I don’t think the levels of stock market multiples that the sector had at the time will be reached for long, although in the short and medium term I expect these multiples to widen, which will lead to further repricing of the companies’ shares over this period,” adds Figares.
Renta 4’s experts are in the same direction. Nuria Álvarez, the company’s analyst, expects rate hikes to continue as the ECB still has a lot to do and this will affect the improvement in the business and the price of the banks. The expert believes that the remaining companies, with the exception of Bankinter, still have significant revaluation potential.
Looking ahead over the coming months, Álvarez expects the focus in 2023 to be managing liability costs. In other words, how the interest rate hike translates into deposits and loans, the basis of banking. This will directly impact margins, which have already seen double-digit growth in the first nine months of 2022.
As the monetary normalization process gains momentum, expect the 12-month Euribor to continue rising. Álvarez believes this will help the re-rating banks are experiencing to continue beyond 2023. “Barring any extraordinary events that may occur, stock market behavior should be positive throughout the year. However, the year will not be free of volatility,” notes Álvarez.
Monetary policy aside, the earnings season will be crucial in the short-term to whether companies are able to maintain the good form of the last few months. Eyes will be on the guidance they are announcing and the eventual provisions to announce possible macroeconomic deterioration at national and global levels.
Bankinter, excluding domestic banking
Without discount. As has been the case in the past, Bankinter maintains a premium over other companies. This is because the company managed by María Dolores Dancausa has a much higher financial return (ROE). As a result of this process, the bank not only trades at book value, but also at 25% above book value.
bigger discounts. Despite the recovery, Santander continues to offer a 44% discount, a level not seen since last June. For its part, Unicaja, the newcomer to the selection, maintains a discount of over 51%, the level of October 2018, while in Sabadell it reaches 59%, a level not reached since January 2020, before the outbreak of the pandemic. Although the price of the companies more or less manages to bid farewell to the lows recorded after the Great Confinement.