Analysts are starting to see value in Spanish banks for the first time in years, despite anticipating further earnings downgrades and heavy regulatory headwinds later on this year.
Spain’s main lenders post earnings on Thursday and are expected to report more pressure on profits despite being granted 100 billion euros of European aid.
However, John-Paul Crutchley, European bank analyst at UBS said while Spain’s economy remains challenging, there are signs of improvement in unemployment and consumption, and he believes the debate has moved on from balance-sheet issues.
“We expect the sector to book virtually no profits in the second quarter excluding one-offs to meet provisioning needs. The outlook for the second half remains challenging,” he said. “But since the beginning of the year, we have become gradually less negative on Spanish banks… We are starting to see some value in several banks for the first time in years.”
Crutchley believes earnings for Spain’s banking sector could soon bottom out.
BBVA is Crutchley’s top pick out of Spanish banks because of its exposure to the Mexican market. He predicts the stock, which is down 7 percent so far this year, will rise 18 percent in the next 12 months. Crutchley upgraded the stock earlier this week to a “buy” from “neutral” with a price target of 7.60 euros.