Sunday 13 July 2014

Analysis of Banco Santander

Banco Santander, a Spanish financial group

Company: Banco Santander

ISIN ES0113900J37 | WKN 858872

Business: A Spanish financial group heavy in retail banking. They have, besides from the retail banking which is their core, six divisions: Global Wholesale (services to institutions and corporations), Asset Management (savings and investment products), Global Private Banking (financial advice and wealth management for their wealthy customers), Insurance Santander (family insurance and saving products), Payment Methods (credit and debit cards) and finally Universities (they give scholarships, grants and awards. I assume they do this to tie up educated people that will go out and make on average more money, live in bought houses/flats etc.)

Active: Business in over 40 countries with a strong base in Europe and the US. They are also present in several countries in South America.

P/E: 20.2

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 dividends for Santander

The P/E of Santander is too high with 20.2 but the P/B is fully acceptable with 1.25 and it gives is a situation that is slightly outside of Grahams formula which means it is a no go. The earnings to sales are great with 11% but the ROE is bad with 6.2%. Book to debt is normal for a bank with a ratio of 0.07.
In the last five years they have had a yearly growth rate of 0.2% which is bad but considering that they main, main business is Spain and Europe we should probably consider it to be ok for them. This then gives us a motivated P/E of 8 to 10 which means that Banco Santander is today highly overvalued by the market.
The pay a very nice dividend of 7.8% but it is the Spanish option so cash or stocks and most shareholders seem to take it as stock leading to an equal dilution in shares as they pay out in dividend. This dividend also correspond to 159% of their earnings so without the Spanish option it would have been tough for them to keep that up for any longer period.

Conclusion: For Graham it is a border case but he does say no and for me it is a no. The P/E is too high and the ROE too low. The Spanish dividend option I also do not like and that they pay out this unsustainable dividends, as shares or as cash, I also do not find ok.

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