Robust Client Growth And Digital Investment Will Support Stronger Long Term Prospects

Catalysts

About CaixaBank

CaixaBank is a leading Iberian financial group focused on retail and commercial banking, wealth management, insurance and corporate banking across Spain and Portugal.

What are the underlying business or industry changes driving this perspective?

• Robust client acquisition, with almost 400,000 net new clients in Spain and strong primary bank penetration, supports broad based volume growth across loans, customer funds and fees, which can underpin revenue and earnings.
• Growing demand deposits, a high proportion of noninterest bearing balances and disciplined time deposit pricing lower the average cost of funding, which can support customer spread resilience and net interest income.
• Wealth management and protection insurance franchises with sizeable market shares, strong inflows and double digit premium growth provide fee and premium streams that are less sensitive to loan pricing, which can support revenue diversification and net margins.
• Expansion of the ALCO portfolio at yields above legacy books, alongside additional hedging capacity, creates scope for reinvestment at higher rates than maturing assets, which can support NII and earnings visibility.
• Digital platforms such as imagin, along with broad AI and technology investment, are improving client reach and cost to serve, which can support scalable volume growth and operating leverage in net margins.
• Outperformance of the Iberian economies relative to the Eurozone, with solid job creation, investment growth and healthy private sector leverage, provides a supportive backdrop for consumer, SME and corporate lending volumes, which can aid revenue and earnings sustainability.

Assumptions

This narrative explores a more optimistic perspective on CaixaBank compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming CaixaBank's revenue will grow by 9.2% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 37.7% today to 34.9% in 3 years time.
• The bullish analysts expect earnings to reach €6.8 billion (and earnings per share of €1.01) by about January 2029, up from €5.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €6.2 billion.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 15.7x on those 2029 earnings, up from 13.0x today. This future PE is greater than the current PE for the GB Banks industry at 11.8x.
• The bullish analysts expect the number of shares outstanding to decline by 1.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.23%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Loan growth is currently concentrated in higher margin areas such as consumer lending and SMEs. However, a long period of very low private sector leverage in Spain and Portugal could limit how far households and companies are willing or able to increase borrowing, which could cap volume growth and pressure revenue and earnings.
• Customer spreads in Spain are guided to move slightly below 300 basis points into early 2026, while Portugal already sits below that level. If competition in mortgages and deposits keeps pricing tight for longer than expected, the group could see less support from net interest income and net margins than implied in the bullish case.
• The business model leans heavily on low cost, noninterest bearing deposits and strong wealth management and insurance flows. Any structural change in customer behaviour, such as a sustained shift toward higher yielding time deposits or external products, could lift funding costs or slow fee and premium growth, weighing on revenue and net margins.
• The bank is investing heavily in digital platforms, AI and products like imagin and new portals. If industry wide technology and cyber risks rise faster than productivity gains, or if planned efficiencies take longer to materialize, operating expenses and required operational risk capital could trend higher, affecting net margins and earnings.
• The current set up benefits from Iberian economic outperformance, resilient employment and solid investment. A prolonged slowdown in Spain or Portugal, or a reversal in the CapEx cycle that is supporting corporate and SME demand, could weaken loan growth, asset quality and fee momentum, which would challenge the optimistic expectations for revenue and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for CaixaBank is €12.5, which represents up to two standard deviations above the consensus price target of €10.3. This valuation is based on what can be assumed as the expectations of CaixaBank's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €12.5, and the most bearish reporting a price target of just €6.8.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be €19.6 billion, earnings will come to €6.8 billion, and it would be trading on a PE ratio of 15.7x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of €10.45, the analyst price target of €12.5 is 16.4% 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.