You Can’t Afford To Miss Out On Banco Santander SA’s Growth

Santander’s (LSE: BNC) (NYSE: SAN.US) first-quarter results made one thing quite clear: the lender is one of the fastest growing companies around. 

Indeed, Santander’s first-quarter earnings jumped 32% as profits rose in nine out of the ten markets the lender operates in.

What’s more, Santander surprised many analysts by reporting a 41% net increase in earnings within Brazil, where a sharp economic slowdown has strangled the growth of the bank’s competitors. 

Nevertheless, the stand-out region for Santander was the bank’s home market, Spain. 

Stand-out performance

Santander’s Spanish income rose 42% during the first quarter and based on figures released over the past week, this strong performance is set to continue.

The Spanish economy is recovering rapidly and economists now expect the region’s GDP to grow by 2.9% during 2015. Figures released this morning show that the country’s economy grew by 0.9% during the first quarter of the year, giving Spain the fastest-growing large economy in the euro area. 

Strong management

One thing that stands out about Santander’s results is the lack of fines that have been levied on the group.

Other international lenders have been forced to payout billions in fines and legal costs since the financial crisis. Santander, however, has been able to avoid much of the storm. Clearly, the bank’s management has been trying to look after its reputation and customer interests. 

Still, Santander has undergone a complete management overhaul since the death of its veteran chairman, last year. Now, the bank is managed by Ana Botín, daughter of the previous chairman, and she has completely reshuffled the lender’s management team.

Unfortunately, at the same time Ms Botín has cut Santander’s dividend payout, although she also raised €7.5bn in fresh capital.

These actions seem to be contributing to the bank’s growth. Thanks to the rights issue, Santander’s fully loaded core equity tier 1 ratio — financial cushion — stood at 9.7% at the end of the first quarter. The bank is targeting a tier 1 capital ratio of 10% by the end of 2015, which is lower than average, but still respectable. 

Sign of things to come

Santander’s first-quarter results were a sign of things to come at the bank over the next two years. City forecasts suggest that Santander’s earnings will expand by 14% during 2015, and a further 12% during 2016.

These figures suggest that the bank is trading at a forward P/E of 12 and 2016 P/E of 10.9. However, considering the fact that Santander actually surprised many analysts by its strong performance during the first quarter of this year, I wouldn’t rule out further outperformance. 

Santander’s shares are set to offer a yield of 3.2% this year followed by 3.4% during 2016. 

Management is key

Santander’s strong management team has helped the bank become one of the market’s hottest growth stocks.