Why Santander’s share price might be too cheap to miss!

The Santander share price looks like a brilliant bargain to me. Here’s why I think it could deliver mighty shareholder returns.

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The Banco Santander (LSE:BNC) share price remains higher than it was at the start of the year. But fears over the global banking sector and a cooling world economy have prompted a sharp decline more recently.

Santander shares are now trading 18% more cheaply than they were two months ago. This means that (on paper at least) they offer brilliant all-round value.

Created with Highcharts 11.4.3Banco Santander PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

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The bank currently trades on a forward price-to-earnings (P/E) ratio of 5.2 times. It’s a reading that’s lower than those of FTSE 100 retail banks Lloyds and NatWest.

Investors can also enjoy a market-beating 5.1% dividend yield for 2023. So is now the time to buy Santander shares?

Banking worries

Mounting stress in the US banking system remains a big problem for banks around the globe. First Republic is the latest in a string of failures and this week had to be rescued by JP Morgan.

There’s still no sign of a worldwide banking sector meltdown. With the very obvious exception of Credit Suisse, the problems appear to be confined to small-to-mid-sized US banks.

But the problem for bigger global operators like Santander is that depositors in some regions are pulling their cash out en masse. And as more banks in the States come under pressure, the greater the chance of a full-blown run on other banks.

Brits withdrew a record £4.8bn worth of cash from banks in March, according to the latest Bank of England data. A hastening of outflows across the globe wouldn’t likely be fatal to bigger retail banks. But it could put firms’ balance sheets under severe pressure and disrupt their everyday operations.

Revenues soar

Mass withdrawals of course aren’t the only problem for Santander. Weakening economic conditions in its European and Latin American marketplaces could hit revenues and push credit impairments steadily higher. Bad loans here soared 56% in the first three months of 2023, to €3.3bn.

Yet the prospect of more interest rate rises helps to lift the gloom around the bank. Higher rates increase the margin between the interest retail banks charge borrowers and give to savers (known as the net interest margin, or NIM).

Total income at Santander rose 13% during quarter one to €13.9bn. This was driven by a 17% improvement in NIM. Consequently, group attributable income rose 1% year on year, to €2.6bn.

Why I’d buy Santander shares

Graphic showing the growth opportunity for Latin American banks.
Source: CB Insights

But I wouldn’t buy Santander shares based on its near-term outlook. Instead, I’d buy this banking share because of its strong position in fast-growing Latin America and Eastern Europe.

Financial product demand in these emerging regions is booming as disposable income levels increase and populations rapidly rise. Market penetration is incredibly low — as the graphic above shows — and this provides huge scope for banks to grow profits.

Santander has invested more than €35bn in Latin America since the mid-90s to exploit this opportunity. And it has exciting plans to continue growing profits here. Felipe Garcia, head of the firm’s Mexico operations, told Reuters it plans to launch digital lender Openbank there by March 2024.

I’ll be looking to add the Spanish bank to my portfolio when I have spare cash to invest.


Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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