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Sabadell: Good Results, Ratings Momentum Underpinned

FINANCIALS

Sabadell (Baa1 Pos, BBB+) results were good with upgraded guidance and better asset quality. S&P upgraded its rating on 9-Feb and Moody’s has this issuer on positive outlook – with today’s spread-positive news, we see good momentum to this credit. Three points from the call:


  • Upgraded guidance: business momentum is improving. Loan growth (vs. 4Q23) in mortgages, consumer and business loans are all improving including new mortgages in TSB in the UK. Customer margins were also 10bp better in the quarter (banks equity has been hit by those guiding NII lower), meaning guidance is for growth c.1pp better than current consensus and RoE guidance is up about the same. This equates to a high single-digit earnings upgrade, we estimate.
  • Asset quality: loan losses are down 5bp q/q (to 50bp) and non-performers are down to 346bp (from 352bp at Dec-23). Loan losses are well below the run-rates implied in consensus and guidance is for the figure to continue to improve into 2025. This is, arguably, as large a part of the above profit upgrade as the positive news on revenues.
  • Share buyback: a EUR340m (4% of market cap) equity buyback is also being launched today. This will temper the spread positives for credit investors but we still feel these results are, overall, positive for credit and underpins current ratings momentum.
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