Banco Santander (LSE: BNC) (NYSE: SAN.US) delivered another set of impressive quarterly results this morning. The bank said that profits for the first nine months of 2014 rose by 32% to €4.36 billion, while the bank’s non-performing loan ratio fell to 5.28%, down from 5.64% at the end of last year.
Interestingly, Santander’s biggest profit growth came in Spain, where profits for the first nine months of the year rose by 124% to €822m. New loans rose by 1%, and customer funds, such as deposits, were 4% higher.
These Spanish figures compare well to last year, when loans fell by 8%: a rise in loans and an increase in deposits suggests to me that the Spanish economy may be starting to recover, and that customers are no longer drawing down their savings to live on.
In the UK, which is one of Santander’s other main markets, profits rose by 43% to €1,186m during the first nine months, thanks to a 54% rise in current account balances, a 9% increase in loans and a 19% increase in net interest income.
The bank to buy?
I’ve been bullish on Santander for some time and continue to be impressed by the bank’s recovery, its robust balance sheet and its focus on traditional lending and deposit taking activities.
Santander passed the recent European Banking Authority stress tests with flying colours, with a Common Equity Tier 1 ratio of 9% in the worse-case adverse scenario test — compared to just 7.1% at Barclays, for example.
Already in the price?
However, despite Santander’s rising profits, current market forecasts suggest that Santander’s shares may already be fully priced. Today’s 550p share price puts the bank’s shares on a 2014 forecast P/E of 14 and a 2015 P/E of 12 — hardly bargain basement.
What’s more, analysts are persistently bearish about the bank’s oversized dividend, forecasting a small reduction for both this year and next, perhaps because it is not expected to be covered by earnings.
Still a buy for me
According to Reuters, the consensus rating for Santander is hold. However, I’m not convinced: the bank’s management has expressed its commitment to maintaining its annual €0.60 dividend payment, which provides a prospective yield of 8.5% at today’s share price.
I believe Santander continues to deserve a buy rating for long-term income: indeed, along with HSBC Holdings, Santander is my banking pick for income investors.
