RBC downgrades Banco de Sabadell on fair valuation, competition concerns
Investing.com -- RBC Capital Markets downgraded Spain’s fourth-largest bank Banco de Sabadell SA (BME:SABE) to “sector perform” from “outperform” on Friday, raising its price target to €3.30 from €3.05.
Shares of the bank were down 4% at 07:24 ET (12:24 GMT)
With shares trading at €3.25, the new target implies 2% upside, according to the brokerage.
"Besides well-telegraphed upcoming distributions, we fail to identify meaningful catalysts for the shares, which now trade at fair value, in our view," analysts Pablo de la Torre Cuevas and Benjamin Toms said in the report.
The analysts warned that "lack of revenue diversification post TSB sale (Spain >95% Group PBT) renders SAB more vulnerable to potential competition-driven NIM compression in its domestic market."
Sabadell’s shares have outperformed the European banks index by more than 20 percentage points since BBVA’s takeover bid began in April 2024, now trading in line with the SX7P at approximately 1.5 times two-year forward price-to-tangible book value.
A P/TBV versus ROTE regression shows that Sabadell’s valuation screens fair value compared to FY27 consensus expectations for Iberian, Italian and domestic-focused EU and UK lenders.
"We turn increasingly prudent in a context of intensifying price competition amongst incumbents and digital-only players, where we believe SAB has a relatively lower ability to compensate NIM erosion via cross-selling," the analysts said.
TSB’s sale in July 2025 was very well-timed in the context of BBVA’s takeover process and considering recent sentiment ahead of the UK Budget, according to the brokerage.
The healthy multiple achieved puts Sabadell’s distribution profile at the top of European banks in the short-term, with planned shareholder remuneration of €6.45 billion during FY25-27E representing approximately 40% of market cap.
RBC’s FY27E ex-TSB profit before tax estimate of €2.47 billion increased 1% from prior forecasts, driven by higher net interest income.
The brokerage projects an NII of €3.91 billion versus management guidance of approximately €3.9 billion, supported by 5.2% loans growth and 3.9% deposits growth CAGR from 2024-2027.
Net profit ex-AT1 is forecast at €1.66 billion by FY27E versus guidance exceeding €1.6 billion, resulting in 15.6% return on tangible equity versus the bank’s 16% target.
The bank’s value-creation target of approximately 15% TBVps plus DPS CAGR 24-27E substantially exceeds its historical average of approximately 2% CAGR since 2011.
