Analyst Note| Johann Scholtz, CFA |
Banco Bilbao Vizcaya Argentaria, or BBVA, booked a handsome earnings beat for the final quarter of 2020, net attributable profit coming in at EUR 1.3 billion while the consensus of analysts polled by BBVA itself expected net profits of EUR 1.1 billion; if one excludes one-off gains attributable profit came in at EUR 1 billion compared with the EUR 792 million consensus had forecast for the quarter. The earnings beat was however, largely the result of lower-than-anticipated loan-loss provisions, especially in BBVA's U.S. operations--the disposal of which BBVA announced at the end of last year. One can assume BBVA was never likely to book highly conservative provisions against the cash flow of a business that is being sold; this lowers the quality of the earnings beat. We were disappointed BBVA only announced--what we estimate to be--a EUR 2.5 billion share buyback, while it has by its own admission, EUR 8 billion of surplus capital. The surplus being calculated even after taking into consideration the more stringent capital targets BBVA also announced. We now incorporate the U.S. disposal for the first time in our fair value estimate for BBVA. We increase our fair value estimate to EUR 5.90/share from EUR 4.50/share previously. In our modelling we are working from the assumption BBVA will eventually return the full capital surplus to shareholders, which supports our fair value estimate.