With central banks hiking rates at record pace throughout 2022, it’s been a difficult year for investing in finance companies. But we think that brighter times are on the horizon, and this week we’re looking at one of the most promising bank stocks in Europe.
Bankinter, S.A. (BME: BKT) is a Spanish mid-size financial services company headquartered in Madrid. It was founded in 1965 as an industrial bank through a joint venture between Banco Santander and Bank of America. Bankinter shares have been trading around the €6.10-6.40 range at the time of writing, giving it a market cap around €5.6 billion. Bankinter shares have rallied 36% this year, far outpacing the general market and bringing Bankinter close to its pre-pandemic high of €6.63 / share.
Recent Developments
Bankinter has just announced its joint venture with Portuguese conglomerate Sonae’s banking division Universo to merge its credit business. Over the past few years, Universo has become a benchmark operator in the Portuguese financial services market, leveraging its digital component and contributing towards boosting the performance of the businesses in the group and their ecosystem of partners. Universo currently has over 1 million clients and a credit portfolio of around €400 million.
“The agreement with Bankinter aims to leverage this trajectory of success to build the leading operator in consumer credit in Portugal”, says João Dolores, CFO of Sonae.
ESG
Bankinter has been named Spain’s most socially responsible bank by global data firm Statista for its transparency, responsible use of resources, fair employee treatment and fighting corruption. Bankinter’s President Pedro Guerrero is a key senior representative at the Spanish Business Council for Sustainable Development. This is made up of the top companies and led by Floretica- the leading business organization of sustainability in Spain.
As you know, we like companies that are managed well, and it’s nice to see Bankinter’s stocks already reflecting this good governance.
Fundamentals
Bankinter’s rally this year has been driven by earnings growth, with EPS up 41% to 1.49, and enjoys a 38% operating margin.
Bankinter trades at a P/E ratio of 10.8 and pays out a 3.5% dividend. Its price/book ratio is 1.05, which looks attractive against the industry's average of 1.44.
At a P/CF ratio of 3.30, this suggests that the stock is undervalued based on the strength of their cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 12.64.
The Outlook
In their Q3 earnings call, Bankinter reported a total of $484 million revenue (a 16% rise on the previous quarter), comfortably beating analyst expectations. The call highlighted a trend of services diversification, led by asset management, payments, brokerage, FX differences and risk transactions.
The biggest risk to Bankinter is changes in the European Central Bank’s policies and interest rates. Rates have been raised to 2% this year - massively lagging behind the Fed - and are expected to he hiked at least another 50 basis points in the first half of 2023. However, Bankinter is well-poised to perform in any rates environment, thanks to its strong consumer lending business, which benefits from high rates.
You should keep an eye on Bankinter’s short term liabilities of $95 billion. We’ve already seen things get very ugly very quickly for Credit Suisse, and there is some risk that this fear could spread across the European finance system.
Our take
We think that BKT is a good opportunity for the next 12 months. Bank stocks have been trading at very low multiples this year, and Bankinter has a proven record of growth with a high profit margin and very capable governance.
Every investor and their dog is going to be trying to predict ECB rate decisions next year, but in most reasonable scenarios, we think Bankinter can continue to thrive.