Wednesday, March 23, 2016

Seeking Alpha: BBVA Not Yet Rewarding Patience

Back in June, I wrote that I thought that Societe Generale (OTCPK:SCGLY) looked like the best pick among a four-stock basket of big European banks (SocGen, BBVA (NYSE:BBVA), Santander (NYSE:SAN), and Unicredit (OTCPK:UNCFF)) in need of a lot of self-improvement. While I got that call right, it's hard to call the roughly 17% erosion in SocGen a victory, nor the 30% erosion in BBVA given what I thought was a reasonably attractive (and undervalued) collection of assets that could outperform in more favorable conditions.

As it happens, those "more favorable conditions" haven't really showed up. Spain's economy is improving and overall bad debt levels are declining, but the prospects for better rates have wilted amid prolonged economic doldrums. What's more, bad debt in the energy space has jumped out as the next big challenge to bank's capital levels.

BBVA still looks as though it has potential, but potential can be a watchword for value traps. I'm not so concerned about the company's highly profitable Mexican operations, but there is a real risk that Turkey and Latin America won't grow as quickly as previously expected. Spain has been improving, but weak prospects for rate/spread growth make the recovery process more difficult. Long-term attributable profit growth of 9% can drive a fair value of over $8.50 today, but my former target of around $10.50 requires an average growth rate of over 12% that looks increasingly difficult to reach.

Continue here:
BBVA Not Yet Rewarding Patience

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