European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

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<a href="https://www.smartkarma.com/entities/banco-de-sabadell-sa" target="_blank" data-smartkarma-citation="entities:21295:1" rel="noopener"><strong>Banco De Sabadell SA (SAB SM)</strong></a><strong> refuses to sell TSB to Co-operative Bank for €1,200 million</strong>. Sabadell confirmed that it had received "<strong>an unsolicited show of interest</strong>" from the British retail bank Co-operative Bank for 100% of the capital of TSB, its UK subsidiary. The offer, according to Sky News exceeds £1,000 million. Sabadell confirmed in a statement that it had received a letter from Co-operative Bank in which a proposal for an offer by TSB was presented. However, Sabadell said its Board of Directors had officially responded to the Co-operative bank saying that "this is not a transaction that we wish to explore at this time, as we have previously publicly expressed."</div>
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<p>The <strong>market is cautious about Sabadell, but less concerned about its solvency and asset quality</strong>. Sabadell has domestic exposure to SMEs, still vulnerable due to the Covid-19 crisis. Nevertheless, Sabadell is the best performer in the IBEX 35 this year, albeit it was penalized in 2020 due to the lack of visibility of its business, especially due to its subsidiary TSB and the possible impact of the crisis on bad debts. Sabadell bought TSB in 2015 for about 2.3 billion. TSB is mainly dedicated to mortgages (2% UK market share).</p>
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<p>Management sticks to the strategy that began earlier this year after the arrival of César González-Bueno “TSB was one of the great doubts that weighed on the group, the market gave it a zero value, but from now on its contribution is going to be high. It will be one of the key elements of our profitability". A new three-year plan was launched in May, and the contribution of TSB is paramount to improve  profitability. After accumulating losses of €500 million during the last three years, the British subsidiary begins to bear fruit thanks to a strong restructuring of branches and staff. In the first six months of the current year, it contributed €39 million to the Group's profits.</p>
<p>Sabadell has set itself the objective of reaching a ROTE profitability of over 6% in 2023. The market trusts TSB's contribution to the group's profitability due to the growth of mortgages in the United Kingdom and the prospects for a rate hike by the Bank of England.</p>
<p>Interest in TSB had a positive effect on the shares of Sabadell, last Monday closed 2.75% higher, although the shares rose by more than 5% during the session. TSB has a favorable outlook and the rejection of the Co-op Bank offer confirms management's strategy. For this reason, <strong>a possible sale of TSB in the medium term is ruled out. Without the contribution of TSB, the profitability of the strategic plan would be difficult to obtain</strong>.</p>
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<p><strong>Sabadell trades on 9.65x adjusted 2022e P/E and c. 0.36x PTBV</strong>. TP is €0.7/share (vs. a median Capital IQ consensus TP of €0.63), which represents a 7% upside.</p>
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Banco De Sabadell SA (SAB SM) refuses to sell TSB to Co-operative Bank for €1,200 million. Sabadell confirmed that it had received "an unsolicited show of interest" from the British retail bank Co-operative Bank for 100% of the capital of TSB, its UK subsidiary. The offer, according to Sky News exceeds £1,000 million. Sabadell confirmed in a statement that it had received a letter from Co-operative Bank in which a proposal for an offer by TSB was presented. However, Sabadell said its Board of Directors had officially responded to the Co-operative bank saying that "this is not a transaction that we wish to explore at this time, as we have previously publicly expressed."

The market is cautious about Sabadell, but less concerned about its solvency and asset quality. Sabadell has domestic exposure to SMEs, still vulnerable due to the Covid-19 crisis. Nevertheless, Sabadell is the best performer in the IBEX 35 this year, albeit it was penalized in 2020 due to the lack of visibility of its business, especially due to its subsidiary TSB and the possible impact of the crisis on bad debts. Sabadell bought TSB in 2015 for about 2.3 billion. TSB is mainly dedicated to mortgages (2% UK market share).



Management sticks to the strategy that began earlier this year after the arrival of César González-Bueno “TSB was one of the great doubts that weighed on the group, the market gave it a zero value, but from now on its contribution is going to be high. It will be one of the key elements of our profitability". A new three-year plan was launched in May, and the contribution of TSB is paramount to improve  profitability. After accumulating losses of €500 million during the last three years, the British subsidiary begins to bear fruit thanks to a strong restructuring of branches and staff. In the first six months of the current year, it contributed €39 million to the Group's profits.
Sabadell has set itself the objective of reaching a ROTE profitability of over 6% in 2023. The market trusts TSB's contribution to the group's profitability due to the growth of mortgages in the United Kingdom and the prospects for a rate hike by the Bank of England.
Interest in TSB had a positive effect on the shares of Sabadell, last Monday closed 2.75% higher, although the shares rose by more than 5% during the session. TSB has a favorable outlook and the rejection of the Co-op Bank offer confirms management's strategy. For this reason, a possible sale of TSB in the medium term is ruled out. Without the contribution of TSB, the profitability of the strategic plan would be difficult to obtain.









Sabadell trades on 9.65x adjusted 2022e P/E and c. 0.36x PTBV. TP is €0.7/share (vs. a median Capital IQ consensus TP of €0.63), which represents a 7% upside.










Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>Our biggest concerns have stemmed from a handful of large-cap China internet names, which have held back the MSCI EM and Hang Seng indexes. We are also getting a breakout above $93.50-93.75 on the US dollar, a concerning risk-off signal. Still, our list of concerns remains short, and our outlook remains neutral yet constructive overall.</p>

Our biggest concerns have stemmed from a handful of large-cap China internet names, which have held back the MSCI EM and Hang Seng indexes. We are also getting a breakout above $93.50-93.75 on the US dollar, a concerning risk-off signal. Still, our list of concerns remains short, and our outlook remains neutral yet constructive overall.

Global Cyclical Value Sectors Improving -- Buying Financials and Energy Names: ING Groep, Many More

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

Mitsubishi UFJ Financial (MUFG) / Equity Bottom-Up

<p><strong><em>*For Sale: </em></strong>According to press reports, Mitsubishi UFJ Financial Group (8306.JP) [MUFG] is contemplating a sale of its US banking subsidiary, MUFG Americas – the 22<sup>nd</sup> largest bank in the US by assets, in a significant strategy shift;  and  </p><p><strong><em>*Don’t Expect A Big Premium: </em></strong>Bloomberg suggests that the median sale price for large US banks was approximately 1.4x P/BV last year – implying a deal price of over USD 22 bn. In addition to the price tag limiting the number of potential suitors, any acquirer will have to contend with breaching the national deposit cap. As such, pricing likely would below last year’s US average – particularly considering MUFG America’s fundamental challenges.</p>

*For Sale: According to press reports, Mitsubishi UFJ Financial Group (8306.JP) [MUFG] is contemplating a sale of its US banking subsidiary, MUFG Americas – the 22nd largest bank in the US by assets, in a significant strategy shift;  and  *Don’t Expect A Big Premium: Bloomberg suggests that the median sale price for large US banks was approximately 1.4x P/BV last year – implying a deal price of over USD 22 bn. In addition to the price tag limiting the number of potential suitors, any acquirer will have to contend with breaching the national deposit cap. As such, pricing likely would below last year’s US average – particularly considering MUFG America’s fundamental challenges.

Mitsubishi UFJ Financial Group – US Exit

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

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<li>BBVA Bancomer continued to deliver the best return on equity (ROE) of the biggest nine Mexican banks, on a trailing twelve months basis to July; <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-s-a-b-de-c-v" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte (GFNORTEO MF)</a> retained its second place with upper-teens ROE</li>
<li>To July 2021, bank system ROE recovered further from historically low levels, supported by a contained cost of risk</li>
<li>Top line returns were supported by limited erosion of credit spreads, and benchmark rates rose further in July, which should be spread supportive</li>
<li>Banorte and <a href="https://www.smartkarma.com/entities/banco-del-bajio-sa" target="_blank" data-smartkarma-citation="entities:28382:1" rel="noopener">Banco del Bajio SA (BBAJIOO MM)</a> continue to screen better than peers on credit quality metrics to July, with best-in-class combination of low NPL ratios and healthy coverage</li>
<li>In terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte retain the best position, “working” their core capital harder than their peers</li>
<li>We remain positive on Banorte, but would also highlight mid-cap bank BanBajio for its better relative value</li>
<li>Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure from higher funding costs and a further worsening of credit quality resulting in higher credit charges</li>
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BBVA Bancomer continued to deliver the best return on equity (ROE) of the biggest nine Mexican banks, on a trailing twelve months basis to July; Grupo Financiero Banorte (GFNORTEO MF) retained its second place with upper-teens ROE
To July 2021, bank system ROE recovered further from historically low levels, supported by a contained cost of risk
Top line returns were supported by limited erosion of credit spreads, and benchmark rates rose further in July, which should be spread supportive
Banorte and Banco del Bajio SA (BBAJIOO MM) continue to screen better than peers on credit quality metrics to July, with best-in-class combination of low NPL ratios and healthy coverage
In terms of ROE to core capital ratio, we identify that BBVA Bancomer and Banorte retain the best position, “working” their core capital harder than their peers
We remain positive on Banorte, but would also highlight mid-cap bank BanBajio for its better relative value
Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure from higher funding costs and a further worsening of credit quality resulting in higher credit charges


Mexican Banks’ July Data Show Strong Balance Sheets, and Continuing Improvements in Returns

GigaDevice Semiconductor  / Technical Analysis

<p>Market dynamics remain largely positive which continues to support our constructive outlook, and we view recent weakness as a buying opportunity. Below we highlight notable recent developments and actionable stocks within the Technology, Financials, and Materials Sectors.</p>

Market dynamics remain largely positive which continues to support our constructive outlook, and we view recent weakness as a buying opportunity. Below we highlight notable recent developments and actionable stocks within the Technology, Financials, and Materials Sectors.

China Technology Sector Improving -- Add Exposure

Spain

Banco Bilbao Vizcaya Argentaria, S.A. attracts deposits and offers retail, wholesale, and investment banking services.  The Bank offers consumer and mortgage loans, private banking, asset management, insurance, mutual funds, and securities brokerage services.  It operates in Europe, Latin America, United States, China and Turkey.

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Banco Bilbao Vizcaya Argentari (BBVA SM)

Unlikely Disposal of TSB

TSB has a favorable outlook and the rejection of the Co-op's offer confirms management's strategy. A possible sale of TSB is ruled out. Without...

Jesus Rodriguez Aguilar

Global Cyclical Value Sectors Improving -- Buying Financials and Energy Names: ING Groep, Many More

Continued rising rates is likely to support value Sectors moving forward (especially Financials and Energy), and it also typically indicates...

Vermilion Research

Mitsubishi UFJ Financial Group – US Exit

MUFG: MUFG is contemplating the sale of its US banking subsidiary. In addition to the price tag limiting the number of suitors, so will breaching a...

Thomas J. Monaco

Mexican Banks’ July Data Show Strong Balance Sheets, and Continuing Improvements in Returns

Mexican banks' returns continue recovering to July as credit costs recede & opex growth is contained; healthy credit quality & coverage trends...

Victor Galliano

China Technology Sector Improving -- Add Exposure

Market dynamics remain largely positive which continues to support our constructive outlook, and we view recent weakness as a buying opportunity....

Vermilion Research

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