BCP recovers profitability. Will it be enough?
1Q21 RESULTS
BCP it registered good results figures from January to March 2021, surpassing market estimates. Thus, in 1Q21, the entity’s Net Income amounted to 57.8 million euros, + 63.8% compared to the same period in 2020 and despite having made provisions for 112.8 million euros for legal risk in its operations in Swiss francs carried out in Poland.
By region, the best evolution has been that registered in the internal market. Portugal Profit improves sharply to 83.4 million euros, from 16.2 million in the same period a year ago, thanks to the good performance of the activity and a decrease in operating costs.
Abroad, mainly in Poland and Mozambique, the evolution of the business has not been good, recording losses in the quarter of 25.6 million euros (vs +19.1 million euros in 1Q20), mainly due to the cost of 112.8 million (0.007 euros per share) of the provision to face legal risks linked to loans granted in Poland in Swiss francs in 2008, as well as the fall in interest rates that penalized the financial margin on the Polish market.
The financial margin contracted by 2.5%, (+ 9.7% in Portugal and – 13.8% abroad). Operating costs decreased by 9.2% (-2.8% in Portugal and -16.9% abroad), favoring an improvement in efficiency: the Operating costs / bank income ratio went from 48% a year ago to 44% current and continues to lead in terms of efficiency in European banking.
The return on equity (ROE) closed 1Q21 at 4%, vs 2.4% a year ago and 3.1% at the end of 2020.
BCP recovers profitability. Will it be enough?
SOLVENCY
The total capital ratio closed 1Q21 at 15.5% and the CET1 capital ratio was 12.2%, above the regulatory requirements of 13.31% and 8.83%, respectively.
The entity maintains high levels of liquidity, well above the regulatory requirements; loan / deposit ratio of 85% and assets available for financing with the ECB of 23,000 million euros.
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Risk cost of 91 bp in the Group and 92 bp in Portugal; adequate levels of NPE coverage, with 63% impairment coverage and 113% total coverage, at Group level.
FUNDAMENTAL ASSESSMENT
In 2020, BCP recorded strong depreciations in the value of its assets and increased provisions to cover the risks of unpaid loans. Already in 1Q21, provisions are still estimated at more than 112 million euros due to the risk of operations in Swiss francs carried out in Poland. But the evolution of margins and income has been very positive, highlighting the contribution of the business in Portugal.
BCP also maintains a healthy balance sheet and highlights the reduction in doubtful loans. Furthermore, the level of efficiency is very remarkable, (46.7%), one of the highest in European banking.
It cannot be ignored that the sector risk is not negligible, the default will rise in coming quarters and rates in Europe will remain flat in the medium term.
In a valuation by ratios on estimation of results and with an EPS forecast of € 0.01 / title 2021, BCP is trading already adjusted with a PER at current prices of 12.88v, compared to its historical average of 9v and high compared to the multiple of average market results.
The discount on book value is very large (PVC 0.37v) and reflects the structural problems of the banking sector, with long-term flat interest rates and a highly penalized business profitability. At the moment we do not see catalysts that are going to sustain the evolution of the sector. It is true that it improves profitability, but it will have to give consistency to that improvement in coming quarters.
BCP recovers profitability. Will it be enough?
Based on our fundamental analysis, we review recommendation to neutral for the medium / long term value.
DESCRIPTION OF THE ENTITY
The Portuguese Commercial Bank (BCP) it is the largest Portuguese private banking group. Its activity is distributed as follows:
Retail banking (77.1%) with operations in Portugal, Poland, Greece, Romania, Angola and Mozambique.
Business and investment banking (16.5%).
Private banking and wealth management (1.4%).
Others (5%).
The marketing of its products and services is guaranteed by a network of 1,536 agencies around the world. It has experienced a remarkable internationalization of its business. Thus, the BCP has become an international benchmark institution with a focus on the retail distribution of financial products and services in Poland (Millennium Bank), Mozambique (Millennium BIM) and Angola (Atlántico Banco Millennium – resulting entity from the merger between Millennium Angola Bank and the Atlantic Private Bank and in which the Millennium bcp has a relevant stake).
The Bank also has a private banking platform in Swiss, which plays an important role in this business area, providing service to Group customers in Portugal, Poland and other regions. Millennium bcp is also present in Macau, through its branch on land, which aims to be an international business platform between China / Macau, Africa Portuguese-speaking and Europe.
