BBVA Earnings: Positive Net Interest Margin Fundamentals Drive Strong Growth

Narrow-moat BBVA reported excellent results for the first quarter of 2023, with net profit increasing by 39% compared with the first quarter of 2022 and 18% sequentially. The bank beat the consensus expectation of analysts polled by the company by 11%, and generated a return on tangible equity of 16%, despite having excess capital of EUR 4 billion (10% of its current market value). We do not believe BBVA's current valuation adequately captures its superior profitability, surplus capital, and secular growth opportunities. We expect consensus to upgrade its estimates closer to ours. It currently trades at 0.9 times its tangible book value—in line with the average multiple over the last decade. Still, we believe the bank deserves a higher rating, given the structural reset in its profitability. Between 2010 and 2019, it traded at an average of 1.2 times its tangible book value, yet it only generated an average return on tangible equity of 11% during this period. We maintain our EUR 9.30 per share fair value estimate. We view BBVA as one of the most attractively valued European banks we cover.