Today’s fourth-quarter results from Santander (LSE: BNC) (NYSE: SAN.US) are slightly behind market forecasts, but still show that the Eurozone’s biggest bank is making excellent progress under its new Executive Chairman, Ana Botín.
In fact, the bank’s profit for the final quarter of the year increased by an incredible 70% to €1.46 bn and, while this is slightly behind consensus forecasts of €1.47 bn, the bank’s wider performance has been relatively strong.
For example, costs fell by around 1%, while business income rose by more than 3%. This resulted in an improvement in the bank’s efficiency ratio of around 1.1%, bringing its cost:income ratio down to just 47%. That places it among the most efficient banks in the industry and shows that Santander remains lean and highly profitable, which bodes well for its future performance.
Furthermore, net loans to customers grew by 7.3% following a challenging period in the previous year and, looking ahead, Santander seems to be in a relatively strong financial position following the €7.5 bn share placing that took place recently. Although acquisitions may not be as plentiful as in the past, Santander has no plans to shrink its regional diversification. This is good news for investors in the bank as it means reduced volatility and an increased capacity to cope with regional differences in performance over the long run.
Future Potential
Clearly, Santander’s fourth-quarter results are positive and, as a result, the bank’s share price is up by 2.5% today. And, looking ahead, it seems to be well placed to benefit from an improving global economy and could see its bottom line rise further due to the quantitative easing programme that was announced last week in the Eurozone.
This could have a positive impact on demand for new loans and may help contribute to an upgrade in Santander’s forward guidance. In addition, with net profit expected to rise by 14% in the current year and by a further 13% next year, it seems to be a strong growth play over the medium term.
Despite this, Santander continues to trade on a relatively appealing valuation – especially since its share price has been weaker in recent weeks. For example, it has a price to earnings growth (PEG) ratio of just 0.9, which indicates that its excellent growth rate is on offer at a very reasonable price.
Certainly, there may be more lumps and bumps ahead in the Eurozone, but Santander appears to be in an excellent financial position to cope with them. And, with its profitability, efficiency and strategy being very strong, now could be a good time to buy a slice of it – especially for the long term.
