Banco Santander will expand its reach with a 6% revenue growth despite global risks

Catalysts

• Banco Santander is present in Europe (Germany, Austria, Belgium, Denmark, Spain, Finland, Isle of Man, Italy, Norway, Poland, Portugal and the UK); North America (USA, Mexico); South America (Argentina, Brazil, Chile, Uruguay)
• Its international presence has favoured synergies with multinational agreements with automotive companies that are still developing the market, car financing and vehicle leasing.
• Growth margin in the USA through Miami.
• Geopolitical advantages of Latin American countries, due to their proximity to the USA and the presence of Spanish companies that facilitate access to European and North American markets.
• If American and European companies reduce their exposure to China, it will benefit Latin America.
•  To compete with Fintech, it bought 54% of Ebury in 2023, a Fintech specialising in cross-border payments, and has the Getnet platform for businesses and PagoNxt Payments for companies and institutions.
• The Plard project has been dismissed for the moment.

Assumptions

We will assume that the next 5 years will maintain a payout of 50%, a profitability of 16% on the expanded capital base in 2024, a RoTE of 15%, and a fully-loaded CET1 of 12%. As projected by the bank until 2026.

Sectoral risks

• Large technology companies are competing with banks by offering financing for their products and services.
• Shadow banking is providing credit in segments where capital requirements are restricting the ability of banks to compete.
• Fintech companies are increasingly able to offer cheaper and more attractive digital financial services for customers.
• Increased capital requirements in 2025 due to the application of Basil III.

Global risks

• Ukraine war
• Middle East war
• New tariffs and limitations on free trade. Russia, China, USA
• Pandemics.

Country risks

• In some Latin American regions there are serious problems of citizen security and legal uncertainty that can undermine liberal democracies and private property. This can lead to slowing the growth of the Latin American middle class, which is Banco Santander's client.
• We must pay attention to the exchange rate stability in the area and, above all, to interest rates. As long as interest rates fall, Brazil will allow the Bank to increase its client base.

Valuation

I estimate that revenues will increase by 6% over the next 5 years. The net margin will be reduced to 22% and the PER will be around 5.5%.