There is a thin line between love and hate. But today, let’s focus on the love. Here are five reasons why I’m enamoured of Banco Santander (LSE: BNC) (NYSE: SAN.US).
It’s been through the grinder
Banco Santander isn’t just a bank, it’s a Spanish bank, so it has been through the mill since the financial crisis. And not just the single currency meat grinder, but the UK mincer and Latin American slicer as well. Yet it has survived, and incredibly, its share price has been on a roll lately, up nearly 40% in the last four months. You have to admire its resilience.Â
It is making money again
Banco Santander made a profit of €2.26bn in the first half of 2013, up 29% on last year and roughly equal to its full-year profit for 2012. It has also bolstered its capital cushion, up 0.44% in the first half to 11.11%, and is on course to meet its full capital requirements under Basel III five years early. In Spain, deposits now greatly exceed the value of loans, giving it further protection. After two tough years of heavy provisions, write-offs and reinforcement of capital, the bank is set up for “a new period of profit growth”, to quote chairman Emilio Botin.
Growth prospects look good
Santander has endured four straight years of double-digit drops in earnings per share (EPS), culminating in last year’s death-defying 62% plunge. EPS is rebounding sharply this year with forecast growth of 90%, which would lift pre-tax profits from €3.55bn to €7.8bn. Next year should see another 20% EPS growth, taking profits to over £10bn. These are dramatic growth projections. Fancy a share in that?Â
This is a massive global company
Headquartered in Spain, big in the UK, but massive in Latin America. That’s Santander. It generates 51% of group profit in Latin America, including 25% in Brazil, 12% in Mexico, and 6% in Chile. Europe accounts for 37% of its profits, including 13% in the UK, 8% in Spain and 5% in Germany and Poland. It also has 12% US exposure. Most of these markets have had their troubles, but diversification never goes amiss. It also gives it access to faster emerging market growth. While Santander’s deposits are up 6% in mature markets and loans down 6%, both have risen 12% in emerging markets.
Just look at that yield
I’ve saved the best till last. Right now, Banco Santander yields a whopping 8.8%. Clearly, you don’t get that kind of yield from a bank unless it has its share of troubles, so you have to check out the risks as well. Braver investors might decide that right now, they are outweighed by the benefits.