Thursday 10 July 2014

Analysis of Banco Bilbao (BBVA)

BBVA, a Spanish bank

Company: Banco Bilbao (BBVA)

ISIN ES0113211835 | WKN 875773

Business: A Spanish financial institute. It is currently divided into two business areas: Geographical (with Spain, Eurasia, Mexico, South America and the United States. In each region they are providing different services and since Spain is home base there they offer everything to their customers) and the second one is Global (with Corporate and investment banking, Global lines of business and Digital banking). Two me this looks as if they could not decide upon one strategy and instead went both directions with eight business bosses when it should have been either three or five of them.

Active: Europe mainly Spain but also UK and Portugal, in Asian only China and India, South America they are present in several countries and in North America in the US and Mexico.

P/E: 25.1

This company was analysed due to a request from Hampus posted on the Analysis Requests page.

contrarian values of P/E, P/B, ROE as well as dividend for BBVA

The P/E for BBVA is far too high for me with 25.1 but the P/B is ok with 1.3. Still this gives a no go from Graham. The earnings to sales are looking good with 11% but the ROE is not so great with only 5.2%. Like every bank the book to debt ratio is horrible with 0.08 but it is looking better than many banks!
In the last five years they have had a yearly growth rate of 0.3% which is not really good but based on them being located to a large part in Spain I would say this growth is acceptable. Still it leaves us with a motivated P/E of 8 to 10 which means that based on last years earnings Banco Bilbao is highly overvalued on the market today. They do pay a dividend but please be careful here... they use the Spanish option dividend which means either you get it as shares or as cash. If you take cash then based on what the other shareholders decide to do you might get a dilution of your ownership. The dividend they pay is small with 2.1% which corresponded to 53% of their earnings.
This Spanish option is in my opinion pretty clever but the problem for me is that unless I take it as cash I would be forced to pay a trading fee and that makes it a very bad option for me to be a shareholder.

Conclusion: Graham is saying no and so do I due to the high P/E, low ROE and the Spanish option of dividend payment. When it comes to banks there are still a couple of them in Europe being traded below a P/B value of 1.0 which makes them much more interesting to me than BBVA.

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1 comment:

Fredrik von Oberhausen said...

This bank is no longer Spanish but are now Argentinian.