These are interesting times for Europe’s biggest bank and one of the most widely held shares in the UK. Santander has weathered many storms that have left rivals beached: the financial crash, the eurozone crisis, a Spanish non-performing loan epidemic.
During the financial crisis, it was the only winner of the ABN Amro takeover debacle that dealt killer blows to its consortium partners Royal Bank of Scotland and Fortis. Three years later Europe’s sovereign debt crisis came and went, and though the bank’s gunnels were stuffed full with Spanish government bonds, Santander sailed on.
This year, the failure of Banco Popular allowed Santander to play the white knight, taking over its smaller rival much to the relief of the authorities in Madrid.
If ever there were a Teflon bank, Santander is it. Scandals and accusations of sharp practice that have bedevilled other lenders have simply fallen off its back. Recent warnings about its America car lending book have been shrugged off by the market, indeed the shares are up more than 25 per cent for the past 12 months. Certainly its path has been helped by steady management with control of the bank passing seamlessly three years ago from Emilio Botín to his daughter Ana, who had been running Santander UK until the death of her father at the age of 79.
Little has interrupted her reign and, as yesterday’s results show, revenues and profits have continued to tick steadily upwards — in the most recent nine-month period it made an underlying attributable profit of €1.88 billion, up from €1.7 billion at the same point in 2016.
However, there are some clouds on the horizon. Across the bank’s three largest markets the threat of political instability is growing. Brazil, Santander’s most profitable market, is in the grip of an economic downturn mixed with political upheaval that is leading many to revaluate the country’s attractions.
The UK, Santander’s second largest international operation, is in the middle of an unprecedented withdrawal from the European Union. And then you have Spain. Though it is not clear yet what the wider repercussions, if any, of the Catalonian independence crisis will be for the Spanish economy, they can scarcely be good.
For now none of these businesses looks to be suffering, indeed net attributable profits in Brazil and the UK were ahead of consensus, while Spain was only 1 per cent off what the market expected.
The questions are for the future. How would a “no deal” Brexit affect the relationship between Santander and Santander UK? Certainly the British operation is funded to the extent that it is ostensibly an entirely independent business, but what of future capital distributions back to its parent in a post-Brexit world? How would a deepening Brazilian economic and political crisis knock down its business in the country? And finally, could Catalonian independence spark a full-blown Spanish political breakdown that would set back the country’s economic recovery and raise questions about its domestic loan portfolio?
History has shown that Santander has generally found answers to the problems it has faced. However, times have changed and it is no longer under the supervision of its home central bank but must deal with the rather less sympathetic European Central Bank in Frankfurt, which is less concerned about national champions.
Investors too may be rather less sympathetic; after all, Santander’s dividend yield has halved in recent years and is forecast at 1.5 per cent for full-year 2017.
ADVICE Sell
WHY Santander remains a well-managed bank, but risks are piling up and the shares look fairly valued
Relx Group
Reed Elsevier was renamed Relx Group two years ago as an amalgamation of letters from the names of its businesses but it might as well have been renamed “Reliable”. The information and analytics company, which employs about 30,000 people across 180 countries, delivered a nine-month trading update yesterday that was reassuringly familiar.
Relx posted underlying revenue growth of 4 per cent across its four divisions for the period, the same rate as at its half-year results in July, leaving it on track to hit its full-year forecasts, which are posted in February. Underlying growth is on a constant currency basis and strips out the impact of acquisitions and disposals, which tend to be small-scale and of which there have been £118 million of the former and £78 million of the latter this year.
There was also little change to trading at a divisional level, although growth in its exhibitions business, which includes the PGA Merchandise Show and New York Comic Con, slowed to 5 per cent from 6 per cent. For its scientific, technical and medical business of academic journals, which has been contending with the decline in print advertising, growth was 2 per cent, as was its legal division, while its risk and business analytics business, the fastest-growing, grew by 8 per cent.
Investors have come to expect nothing less from Relx. Indeed, the shares have risen by 18 per cent so far this year — comfortably outstripping the wider index, driven by the safe 4 per cent top line growth rate — and by almost 50 per cent over the past two years. The stock traded at 600p five years ago. Such a rally, however, has meant that Relx is considered an “expensive defensive”, trading on a price earnings ratio of about 20 times for 2017. Its latest results were enough to push the stock up by another 36p to £17.20 yesterday.
Bulls continue to find value in Relx, even in comparison with other perceived safe stocks such as consumer goods companies, which are usually less exposed to cycles. They argue that its management has succeeded in reducing weaknesses by increasing its electronic revenues and has delivered consistent and visible growth.
ADVICE Buy
WHY Reliable stock which although expensive has value
