Expanding Customer Funds And Market Share Will Strengthen Future Prospects

Key Takeaways

• Stabilized net interest income and expanding customer funds highlight CaixaBank's potential for future revenue growth through diverse income streams.
  
• Share buybacks and market share gains reflect a strategic focus on capital return and expansion in Spain and Portugal, supporting future earnings growth.
  
• Intense competition and loan growth challenges in Spain, coupled with economic disturbances and regulatory uncertainties, could pressure CaixaBank's profitability and revenue expansion strategies.

Catalysts

Provides various banking products and financial services in Spain and internationally.

• CaixaBank has shown strong growth in customer funds, with significant increases in both on-balance sheet deposits and off-balance sheet wealth management balances, suggesting potential for future revenue growth through increased net interest income and fee income from asset management services.
  
• The bank has managed to stabilize net interest income (NII) despite expectations of a decline, indicating efficiency in its interest rate management strategies which could positively impact future net margins and earnings.
  
• The announcement of the fifth share buyback program after strong capital generation and interim dividend payouts suggests a focus on returning excess capital to shareholders, which could lead to increased earnings per share (EPS) going forward.
  
• CaixaBank's growth in new lending, particularly in areas like mortgages and consumer lending, coupled with an improving Spanish economy, points towards potential future revenue increases as loan growth continues to pick up.
  
• Continued market share gains in Spain and Portugal, along with underpenetrated opportunities in wealth and protection insurance, provide a solid base for future revenue growth through diversification and expansion of service offerings.

CaixaBank Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CaixaBank's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 36.5% today to 32.8% in 3 years time.
• Analysts expect earnings to reach €5.2 billion (and earnings per share of €0.82) by about January 2028, up from €5.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €4.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.0x on those 2028 earnings, up from 7.4x today. This future PE is lower than the current PE for the GB Banks industry at 12.4x.
• Analysts expect the number of shares outstanding to decline by 3.94% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.48%, as per the Simply Wall St company report.

CaixaBank Future Earnings Per Share Growth

Risks

• The competitive environment in Spain is quite intense, especially in mortgage and business lending, which may pressure asset yields and hinder revenue expansion.
  
• The financial sector in Spain faces challenges regarding loan growth; despite new loan production being up, overall growth remains limited, potentially constraining earnings.
  
• There is uncertainty regarding the longevity and impact of a special tax on financial institutions in Spain, which could affect net margins and profit levels moving forward.
  
• Economic disturbances, such as the flooding in Valencia, could present risks to asset quality and impose unexpected costs, impacting the bank's profitability.
  
• Dependence on recurrent capital distribution strategies like share buybacks due to lack of loan growth can affect capital allocation and long-term investment in growing business areas.

Valuation

• The analysts have a consensus price target of €6.41 for CaixaBank 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 €7.7, and the most bearish reporting a price target of just €5.2.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €16.0 billion, earnings will come to €5.2 billion, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 8.5%.
• Given the current share price of €5.24, the analyst's price target of €6.41 is 18.3% higher.
• 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.