Banco Santander – A Large Bank Doesn’t Mean A Good One
Other operational risks include external frauds, practices with customers and failures in the business channels themselves. While not as prominent as credit-oriented risks, they are not to be taken lightly as a simple data breach can also end up in a costly settlement.
Source: Banco Santander’s 2018 annual report – Risk Management
SAN strong exposure to Latin America is a double-edged sword. If the economy goes well, SAN will thrive. On the other hand, it seems that we are heading towards a bumpy road in those countries. Over the next couple of years, I doubt this exposure will result in growth.
Valuation
Using the Dividend Discount Model (DDM) to give a value to a foreign stock is always a difficult task. Once converted into USD, SAN shows a hectic dividend policy. We have used data from Seeking Alpha ($0.30/year as of November 2019) to start our analysis.
Using conservative numbers, we get a fair value of around $4.50. Considering the hectic payment and the fact there are other great banks with a more stable business model, I don’t see the interest to invest in Santander.
| Input Descriptions for 15-Cell Matrix | INPUTS | |||
| Enter Recent Annual Dividend Payment: | $0.30 | |||
| Enter Expected Dividend Growth Rate Years 1-10: | 3.00% | |||
| Enter Expected Terminal Dividend Growth Rate: | 3.00% | |||
| Enter Discount Rate: | 10.00% | |||
| Discount Rate (Horizontal) | ||||
| Margin of Safety | 9.00% | 10.00% | 11.00% | |
| 20% Premium | $6.18 | $5.30 | $4.64 | |
| 10% Premium | $5.67 | $4.86 | $4.25 | |
| Intrinsic Value | $5.15 | $4.41 | $3.86 | |
| 10% Discount | $4.64 | $3.97 | $3.48 | |
| 20% Discount | $4.12 | $3.53 | $3.09 | |
Please read the Dividend Discount Model limitations to fully understand my calculations.
Disclosure: We do not hold SAN in our DividendStocksRock portfolios.
Additional disclosure: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or ...
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