It doesn’t seem long ago that folk rated Banco Santander (LSE: BNC) as one of the Footsie’s best shares to buy. Steady income, and a scrip dividend, helped those with long-term plans.
But it was dumped along with our own high street banks. Even though it didn’t face the same Brexit pains, it’s still down there with them.
Bouncing back
Q3 results, published on 25 October, make me think that might be a mistake. Net profit beat hopes, up 20% on the same quarter of last year. There’s been a nice boost from high interest rates.
Europe has had a hard time though, and that hit the banks, for sure. But Santander has global diversification, and does a fair bit of business in Latin America.
Bank strategy
It all makes me think about what UK banks have done. Lloyds Banking Group, for instance, turned to UK retail banking after the 2007 crash.
It should make it safe, with a bit of luck. Keeping away from that corporate bank stuff in the US, with all its risks. Oh, and profit.
But in the long term, won’t a wider outlook offer safety for when local business is weak? In today’s shrinking world, I think it must.
It’s why I like the look of Barclays right now, down on a price-to-earnings (P/E) ratio of less than 4.5.
Buy Santander now?
Santander’s P/E is low too, at just 5.4. These results might even drop it further, if the earnings outlook should rise. The share price hasn’t sparkled so far on the day, down 1.2% in early trading.
Executive chair Ana Botín said: “The decision to align our retail & commercial and consumer finance businesses with our strategy is a key step in leveraging the strength of our global network further to better serve our customers and create greater value for our shareholders.“
The bank posted a 13% rise in revenue, with “particularly strong growth in the global businesses.” Global, see. Not closed and insular.
Looks good value
We saw a return on tangible equity (RoTE) of 14.8%, in line with the board’s target. That looks fair for a bank. Liquidity seems fine, with a CET1 ratio of 12.3%.
On the cash front, the interim dividend is up 39%, and the bank has launched a new share buyback. When done, it will have bought back around 9% of its own shares since 2021.
To me, that shows confidence in the long-term value of the stock, seeing it as too cheap now. I agree.
Risk vs value
We can’t ignore the risks the banks face today. They’re many and varied. And banks always seem able to dig up a new crisis when we least expect it.
Interest rate boosts won’t last for ever. And we can’t see what bank earnings might look like when economies settle. If they do.
But Banco Santander looks cheap to me, along with much of the sector. I’ve put it on my list.
