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Banco Bilbao Vizcaya Argentaria SA ADR BBVA

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Morningstar’s Analysis

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Banco Bilbao Q4 2020 Results Ahead of Market Expectations but Surplus Capital Return Disappoints

Johann Scholtz, CFA Equity Analyst

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.

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Company Profile

Business Description

Despite its Spanish origins, BBVA generates three quarters of its profits in emerging markets, especially Mexico that contributes nearly half of BBVA's net profit. BBVA is overwhelmingly a retail and commercial bank with corporate and investment banking forming a smaller part of the overall business.

Contact
Calle Azul, 4
Madrid, 28050, Spain
T +34 915377000
Sector Financial Services
Industry Banks - Diversified
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2019
Stock Type
Employees 123,174

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