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Santander: Bank on Banco
02/20/2014 10:00 am EST
With a price-to-book ratio of 1, this stock—a featured buy in our model portfolio—is among the cheapest large banks in the world, suggests Briton Ryle of The Wealth Advisory.
Banco Santander (SAN) isn't just a European bank. In its most recent quarterly earnings report, Spain accounted for just 15% of profits. And the bank has only 20% of its assets in Spain.
The bank has extensive operations across the lucrative areas of Latin America, and emerging markets account for half of profits in the latest quarter.
By country, Brazil accounted for 26% of total profit, with Mexico providing 13% and Chile 5%. The US and UK each account for 12% of profits.
Santander made a couple acquisitions lately. It paid nearly $190 million to buy the majority stake of the consumer finance unit of the large department store and retailer, El Corte Ingles.
And most recently, it acquired a stake in the Bank of Shanghai that's worth $468 million. Seems to us, the bank can't be so bad off if it is making investments.
Santander cut its dividend in 2009, but it has maintained it since. And with the expected jump in earnings, the $0.64 a share it pays should be safe.
There's no reason to think that, in a few years, Banco Santander couldn't trade for 1.5 times book value—compared to just 1 times book now. And the forward P/E of 13 is also attractive.
Before the financial crisis, the stock traded between $18 and $22. We don't expect a return to those levels anytime soon, but at $9.10 now, our 12-month price target of $9.50 is looming.
Given the turn in the Spanish economy, we are putting Banco Santander back in the buy column. Buy Banco Santander below $9.50.
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