UniCredit Maintains HOLD Rating on Banco Santander, Target Price Reduced

October 10 00:00 2011

LONDON, October 10 (RainbowNewsLine.com) – Analysts at UniCredit Equity Research reiterate their HOLD rating on the shares of Banco Santander (SAN SM), while reducing their estimates for the company. The target price has been is reduced from €7.40 to €6.70.

The reasons the analysts quote for the HOLD rating for Banco Santander are that the the bank has a strong buffer provision in Spain and the potential shortfall in capital. However, key highlights of analyst’s evaluation are as follows:

  • Even if Santander reaches its 2014 targets, the company might face various challenges and one of them could be clean up of the Spanish loan book. Guidance suggests 2014 TROE of 16% – 18% and analysts forecast 14.6% by 2013.
  • UK accounts for around 17% of Santander’s profit, and UK CEO Ana Patricia Botin view this as the major region causing profit downgrades as they are expected to be struck by continuing low interest rate and extra regulations.
  • Negative UK outlook is a major source of earnings downgrades, moreover flat profit in Brazil in 2H’11 against 1H’11 were reported and it is expected to continue.
  • Santander does not believe in capital actions  post Basel III (80bp) core Tier 1 ratio of 9.5% (UCGe 8.8%) by FY13. Nevertheless, considering Spanish real estate exposure, the analysts cannot rule out the need for capital actions.

Owing to lower earnings in UK, Brazil & Spain, the estimated EPS for 2012 is set at 9% below the consensus of 14%. However, 3Q’11 result, which is due on 27 October’11, may cause the stock to trigger, the analysts say.