Spain's Economic Growth Will Foster Future Expansion In Wealth Management Products Like MyBox

Key Takeaways

• Strong growth in customer funds and loans, along with positive earnings impact from increased NII and service revenue, supports robust future revenue potential.
  
• Strategic focus on wealth management and a notable market share in insurance products contribute to maintaining high net margins and enhancing EPS.
  
• Exposure to Eurozone conditions, banking tax pressures, interest fluctuations, and competition could challenge CaixaBank's growth, profitability, and market share retention.

Catalysts

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

• Strong growth in customer funds and loans, with an expectation for increased loan demand and loan balances over the next 3 years, could significantly impact future revenue growth.
  
• Overperformance in both net interest income (NII) and revenue from services in 2024, along with expected continued acceleration of growth trends into 2025, bode well for positive earnings impact.
  
• Announced capital plans, such as the €500 million share buyback and future distributions due to a strong capital position, could enhance earnings per share (EPS).
  
• The decoupling of the Spanish economy from the Eurozone and higher-than-expected GDP growth forecasts for Spain in 2025 provide a favorable operating environment that can positively impact revenue and net income.
  
• Strategic focus on wealth management and successful product lines like MyBox, with significant market share in protection and insurance, is likely to maintain high net margins due to better product mix and higher fees from long-term savings and insurance products.

CaixaBank Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CaixaBank's revenue will grow by 3.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 37.2% today to 33.6% in 3 years time.
• Analysts expect earnings to remain at the same level they are now, that being €5.5 billion (with an earnings per share of €0.8). However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €4.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.6x on those 2028 earnings, up from 8.8x today. This future PE is greater than the current PE for the GB Banks industry at 7.7x.
• Analysts expect the number of shares outstanding to decline by 2.96% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.66%, as per the Simply Wall St company report.

CaixaBank Future Earnings Per Share Growth

Risks

• Exposure to the evolving macroeconomic conditions within the Eurozone, despite Spain's current economic strength, could impact predicted growth in loan balances and revenue.
  
• The banking tax for 2025, projected around €600 million, may pressure net income and profitability.
  
• The anticipated decline in net interest income by mid-single digits in 2025, influenced by rate environments and deposit costs, could suppress earnings momentum.
  
• Dependency on interest-bearing deposits' trend stabilization and the expectation of maintaining noninterest-bearing growth could risk net margins if conditions change.
  
• Increased competition, especially in mortgage and payroll client acquisition, could affect market share retention, impacting revenue streams and growth objectives.

Valuation

• The analysts have a consensus price target of €6.969 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 €8.2, and the most bearish reporting a price target of just €5.75.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €16.4 billion, earnings will come to €5.5 billion, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 8.7%.
• Given the current share price of €6.8, the analyst price target of €6.97 is 2.4% higher. 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.