Total Digitalization Will Strengthen Bank's Market Position

Key Takeaways

• Strategic focus on digitalization and customer engagement aims to boost revenues and strengthen market position with sustainable revenue growth through customer acquisition.
  
• Emphasis on efficiency, risk management, and organic growth enhances market share, net income, and supports future earnings with profitable lending.
  
• Legal risks from Swiss franc loans, regulatory costs, and anticipated interest rate cuts may pressure Santander Bank Polska's net margins and earnings growth amidst macroeconomic uncertainties.

Catalysts

Provides various banking products and services for individuals, small or medium-sized enterprises, corporate clients, and public sector institutions.

• The bank's strategy of total experience, total digitalization, and total responsibility underpins its efforts to strengthen its market position and brand, which is expected to result in increased customer engagement and subsequently higher revenues.
  
• The bank's growing number of digital and mobile banking customers, along with a significant increase in customer deposits and loans, suggests strong customer acquisition and retention, which are catalysts for sustainable revenue growth.
  
• Continued emphasis on organic growth, particularly in corporate loans, and profitable expansion strategies are expected to enhance the bank's market share and increase net interest income and fee income.
  
• The management's focus on maintaining a low cost-to-income ratio and operational efficiency while managing regulatory costs point to potential improvements in net margins.
  
• Effective management of credit risk and a strong capital position support the bank's capacity for profitable lending and dividend payouts, contributing positively to future earnings growth.

Santander Bank Polska Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Santander Bank Polska's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 32.4% today to 43.9% in 3 years time.
• Analysts expect earnings to reach PLN 7.6 billion (and earnings per share of PLN 74.77) by about March 2028, up from PLN 5.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.9x on those 2028 earnings, down from 10.3x today. This future PE is about the same as the current PE for the GB Banks industry at 9.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.18%, as per the Simply Wall St company report.

Santander Bank Polska Future Earnings Per Share Growth

Risks

• The Swiss franc loan issue presents a significant legal risk, as the bank has received claims totaling PLN 7.9 billion, which could negatively impact net margins due to potential settlement and legal costs.
  
• Exposure to regulatory costs and taxes, amounting to PLN 3.1 billion for 2024, may continue to burden net earnings going forward, especially with increased contributions to regulatory funds.
  
• Interest rate cuts anticipated in 2025 could lead to a reduction in net interest income, impacting overall earnings, as the bank is assessing a potential reduction of 100-125 basis points in rates.
  
• The bank’s heavy reliance on organic growth and a focus on maintaining a profitable growth trajectory could be challenged by macroeconomic uncertainties and competition, potentially affecting revenue and market share.
  
• Uncertainty regarding future economic conditions, particularly related to the cost of credit risk and macroeconomic risks in 2025, may affect the quality of the loan portfolio and lead to increased provisioning costs, impacting net margins.

Valuation

• The analysts have a consensus price target of PLN557.067 for Santander Bank Polska 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 PLN639.0, and the most bearish reporting a price target of just PLN450.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be PLN17.4 billion, earnings will come to PLN7.6 billion, and it would be trading on a PE ratio of 9.9x, assuming you use a discount rate of 10.2%.
  
• Given the current share price of PLN523.2, the analyst price target of PLN557.07 is 6.1% 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.