Santander "Resetting Brazil down, valuation tighter, structural narrative..."

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Santander "Resetting Brazil down, valuation tighter, structural narrative..."

Resetting Brazil down, tighter

valuation, key narrative angles in place

Edging CABK/BCP by a small margin (+23% vs 20-21%), SAN remains the best

performing Iberian banking stock year to date, outperforming the European

sector by c8pp. Chronologically, the stock performed strongly in the run up to the

February 25th CMD, underperformed heavily when the Middle East conflict escalated

and has regained momentum in the last month after the initial US/Iran ceasefire

agreement. Underneath those moves lie (i) a broad based investor willingness to favour

the stock, and (ii) a marked risk-on profile, with the stock showing a high degree of

volatility depending on the direction of geopolitical developments.

Figure 1: SAN retains its YTD outperformance, and has acted as a clear risk-on stock post Middle East conflict escalation

SAN onflict escalation re

tai for ce,

ns c cte man its YT as

a nd ar sk- per

a le

d

D ri ha

a

s

out

on stoc k p ost Mid dle Eas t c

Source: Refinitiv; SAB's performance does not adjust for the €0.5 TSB dividend paid in May (15% of market cap)

From a valuation perspective, this strong progression in the last 18 months has

allowed SAN not only to close its historic PE discount vs sector (c15% on a 5-year and

10-year basis), but now to trade at a modest premium of <5%. Against its own history,

the stock trades on a c35% premium to the 10Y average, and a c55% premium to the

5Y average.

Figure 2: SAN trades marginally above European peers' average.

e Eur

abov

nally

argi

es m

trad

SAN

opean peers averag e.

Source: Refinitiv

Overall, like with many banks in our coverage, upside following a sustained spell of

share price strength appears now (i) more limited and (ii) increasingly