More dividends and record profits, Sabadell’s weapons in the BBVA takeover bid, enough to convince shareholders and investors?

Yesterday, Banco Sabadell presented its arguments in response to BBVA’s hostile takeover bid: record profits in the middle of the year, increased dividends, increased profitability and improved commercial revenues. In addition, organization chaired by Josep Oliu raised its business forecasts for this year and next; projects also historical results for 2024 -“at least 1.4 billion euros“-, and seeks to increase shareholder compensation beyond the improvement announced yesterday.

The first half-year reports serve Sabadell both to justify its solo project and to combat the “undervaluation” that plagues the company on the stock market. “It’s cheap,” said the group’s CEO, Vallesano. Cesar Gonzalez-Buenoduring the presentation of the balance sheet to the press, and this is one of the factors that, in his opinion, caused BBVA to move. The results allow the group to justify itself to shareholders and investors who are closely monitoring the future of the takeover bid. The question is whether they will be enough to convince them.

The stock market reaction was muted yesterday. Sabadell shares started the session lower, turned around by mid-morning and ended the day up 1.35% to €2.04.

Analytical companies value progress in almost all areas of the bank’s activities and, above all, improvement of the targets for the coming years. Now there are those who advise with such advice overweightas is the case with Renta 4 experts, who set a target price of €2.16, claiming that “results exceeded our estimates and consensus estimates throughout the earnings report.”

And there are those who, as in the case of Bankinter, maintain their recommendation. neutral because Sabadell is already above its target price and because it continues to think that BBVA takeover bid success probability ‘low’ If Torres does not improve the trade equation and/or offer a payout of cash“It should be remembered that BBVA is offering a simple exchange of 1 BBVA share for 4.83 Sabadell shares, which at current prices implies a premium of only 4.6%,” the company’s analysts note.

Dividend increase

To reassure shareholders, Sabadell announced yesterday an increase in planned dividends from the previous 2.4 billion to 2.9 billion under the new proposal, to be distributed between 2024 and 2025, equivalent to 53 euro cents per share. In total, 500 million euros more than González-Bueno estimates. They still have “potential for improvement” although he did not specify to what extent, as he lacked “sufficient visibility” to provide a figure. However, the updated figure is at the upper end of the bank’s distribution policy, which covers between 40% and 60% of profits.

The first interim cash dividend will be paid in October next year and will amount to eight euro cents per share, for a total of 429 million euros. “This interim dividend for 2024 alone will be 33% higher than the sum of the two dividends paid during 2023,” the bank said. The remaining 45 cents will be distributed through a buyback or in cash in a manner approved by the board of directors at the beginning of 2025, subject to ECB approval.

Given the higher dividends, Capital Adequacy Ratio CET1which measures a company’s solvency, rose to 13.48% at the end of the first half of 2024.

Regarding business development, Gonzalez-Bueno assured that after many years of transformation at the bank, “Now it’s time to grow”. And they did. The results of the first half of the year highlight the dynamics of the interest margin, which grew by 9.8% year-on-year to 2.493 million, thanks to the fact that the client margin reached 3.18%.

Banking revenue (interest margin plus net fees) was £3.168 million, up 6.8%, while total expenses rose 2.5% to £1.515 million.

loan portfolio grew by 0.9% year-on-year, driven by strong growth in new SME and corporate lending, as well as mortgage and consumer lending. In turn, client resources under management grew by 2.1% year-on-year to 206.742 million.

Problem assets at the end of June decreased to 6.341 million, of which 5.439 million were doubtful loans and 902 million were collateral assets, while the level of overdue debt was 3.21%.

TSB, a UK subsidiary, contributed $95 million.