FINANCIALS: Sabadell: Positive Results But Spread Risks To Downside

Sabadell (SABSM : BBB- pos/BBB) results are unsurprisingly good with beats on NII, loan losses and guidance upgrades to NII, RoTE and Basel IV capital impacts. Spreads have been defined by the BBVA bid and, much as these results are positive, we don’t feel they outweigh that bid premium. Further, as Sabadell is, effectively, courting equity holders to reject the bid with these positive (standalone) results, we fear risk is to the downside. Positively, indications for Spanish peers (Caixa, Kutxa, Ibercaja, Abanca, Unicaja), alongside Lloyds (better mortgage narrative from TSB), are good.

• Credit stats: loan losses are just 35bp, at least 10% better than consensus and 16bp better than 1Q24. The main part of the improvement is in Spain. NPLs are 30bp better q/q (at 3.7%) with TSB static and all the improvement in Spain. CET1 ratio is 13.5%, 7bp better than expectations. So, solid all round.
• Revenues are 2% better than consensus, almost entirely driven by NII, costs are broadly in line and that loan loss beat means pre-tax is 12% above expectations.
• Guidance: NII has been upgraded to indicate growth y/y in 2025 (from “flattish”) and fee income is upgraded to a 3% decline (from mid-single digit). RoTE outlook was upgraded at 1Q24 stage (to >12% from >11.5%). The impact of Basel IV has also been lowered (to -20bp, from -50bp) which is aimed at further pleasing equity holders, we sense.

Conf call is 0800 (London time) at: https://sabadellresultados.com/2024_02/