Digital Expansion And Sustainable Finance Will Drive Future Opportunities In Spain And Mexico

Key Takeaways

• Significant growth in high-margin loans and customer acquisition indicates strong future revenue potential and earnings growth.
  
• Strategic focus on sustainability and investment in digital/AI initiatives positions BBVA for enhanced profitability and operational efficiencies.
  
• Currency depreciation and political uncertainties may negatively impact BBVA's earnings and loan growth in Mexico and Turkey, squeezing margins and raising risks.

Catalysts

Provides retail banking, wholesale banking, and asset management services primarily in Spain, Mexico, Turkey, South America, rest of Europe, the United States, and Asia.

• The significant growth of BBVA’s loan portfolio, particularly in high-margin consumer and SME sectors, indicates strong future revenue potential in both Spain and Mexico. This growth can bolster BBVA's net interest income and overall revenue.
  
• The record acquisition of 11.4 million new customers, driven by BBVA’s strong digital capabilities, suggests that cross-selling opportunities and customer base expansion will help drive future revenue and earnings growth.
  
• The strategic focus on sustainable business, with nearly €100 billion channeled in 2024, positions BBVA to capitalize on emerging green finance trends, potentially enhancing future profitability and contributing to revenue growth via new market segments.
  
• The lifting of restrictions on share buybacks, enabling a new buyback program amounting to €993 million, suggests an increase in earnings per share (EPS) and potential for enhancing shareholder value through efficient capital management.
  
• Continued investments in digital strategy and AI, along with strong prospective loan growth in core markets, are catalysts for operational efficiencies and enhanced customer satisfaction, likely improving net margins and supporting sustained profitability growth.

Banco Bilbao Vizcaya Argentaria Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Banco Bilbao Vizcaya Argentaria's revenue will grow by 6.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 30.6% today to 25.6% in 3 years time.
• Analysts expect earnings to reach €9.8 billion (and earnings per share of €1.81) by about March 2028, up from €9.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €8.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.3x on those 2028 earnings, up from 8.0x today. This future PE is lower than the current PE for the US Banks industry at 8.5x.
• Analysts expect the number of shares outstanding to decline by 5.8% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.0%, as per the Simply Wall St company report.

Banco Bilbao Vizcaya Argentaria Future Earnings Per Share Growth

Risks

• Currency depreciation, particularly with the Mexican peso and Turkish lira, could negatively impact BBVA's tangible book value growth, reducing earnings in these regions due to unfavorable exchange rates.
  
• Increasing competition in Mexico, especially in demand deposits, could constrain BBVA's ability to maintain its competitive edge in deposit costs, potentially squeezing net interest margins.
  
• Political and economic uncertainties, such as potential changes in US-Mexico trade relations, may affect growth forecasts and create volatility, impacting loan growth and overall market conditions in Mexico.
  
• The high loan-to-deposit ratio in Mexico, hovering around 104%, suggests potential challenges in funding future growth and could pressure net interest margins if funding costs rise.
  
• The risk of economic normalization challenges in Turkey, along with potential changes in asset quality, could lead to higher provisioning needs and cost of risk, negatively affecting profitability in this region.

Valuation

• The analysts have a consensus price target of €13.093 for Banco Bilbao Vizcaya Argentaria based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €15.0, and the most bearish reporting a price target of just €9.7.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €38.3 billion, earnings will come to €9.8 billion, and it would be trading on a PE ratio of 8.3x, assuming you use a discount rate of 9.0%.
• Given the current share price of €13.44, the analyst price target of €13.09 is 2.7% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.