Seeking Alpha
, Optionity (1 click)
Long/short equity, value, options trading, options investing
Profile| Send Message|
( followers)  

While it is still early to bet on the economic recovery for Europe, some European banks have started to rebound after a long slide. In this article, three European banks will be quickly reviewed, including Banco Santander SA (NYSE:SAN), Lloyds Banking Group (NYSE:LYG) and Deutsche Bank AG (NYSE:DB).

Banco Santander SA

Banco Santander SA, with a market cap of $75.45B, is a Spain-based financial institution, offering retail, commercial, private banking and asset management services. Although SAN had managed itself better compared with its peers during the financial storm, the short-term risk remains that could impact the returns negatively.

On April 23, 2013, UBS upgraded SAN from sell to neutral. Analysts currently have a mean target price of $8.71, suggesting 19.15% upside potential based on the closing price of $7.31 on April 23, 2013. Analysts, on average, are estimating an EPS of $0.77 with revenue of $73.36B for 2013, which is 30.80% higher than 2012.

Fundamentally, SAN has a total cash of $353.89B with a total debt of $441.74B. SAN's debt/equity ratio of 0.3 is well below the industry average of 2.6. SAN is currently trading below its book value of $9.41. SAN's P/E of 26.8 is higher than its five-year average of 13.3. However, it's P/B of 0.7 is below its five-year average of 0.9. Lastly, SAN remains undervalued with its Forward P/E of 9.5.

Technically, SAN is on the downtrend since February, 2013. However, SAN has started to bounce back from its long-term support since early April, 2013, as seen from the chart below.

(click to enlarge)

Source: Finviz.com

Lloyds Banking Group

Lloyds Banking Group Plc, based in the United Kingdom with a market cap of $54.76B, provides a wide range of banking and financial services, engaged in retail, commercial and corporate banking, general insurance, and investment services, etc. LYG is slowly recovering itself after the financial crisis in 2008. However, due to weak economic condition in U.K., LYG still has a long road ahead to recover itself.

Based on the data provided by Thomson Reuters, the current mean target price for LYG is $4.18, suggesting 3.44% upside potential based on the closing price of $3.11 on April 23, 2013. Analysts currently are estimating an EPS of $0.31 with revenue of $33.08B for 2013, which is 13.60% higher than 2012.

Fundamentally, LYG is operating at a loss with a negative operating cash flow of $14.50B. LYG generates negative ROA of -0.1 and ROE of -3.0, which are all below the industry averages. However, LYG's debt/equity ratio of 0.8 is below the industry average of 2.6. LYG is currently trading below its book value of $4.04.

Technically, LYG is on the downtrend since the beginning of 2013. However, LYG has started to rebound from its long-term support in the last few trading days, as seen from the chart below.

(click to enlarge)

Source: Finviz.com

Deutsche Bank AG

Deutsche Bank AG, founded in Berlin in 1870 with a market cap of $38.26B, is a global investment bank, offering a wide variety of investment, financial and related products and services around the world. DB had avoided the government bailout during subprime crisis and had better managed exposures to the European debt crisis. However, DB's low margins and ROE remain as concerns.

Based on the data provided by Thomson Reuters, the current mean target price for DB is $60.15, suggesting 46.07% upside potential based on the closing price of $41.18 on April 23, 2013. Analysts are projecting an EPS of $5.31 with revenue of $45.27B for 2013, which is 23.30% higher than 2012.

Fundamentally, DB's revenue growth (three-year average) of 9.0 is below the industry average of 17.6. DB's margins and ROE are all well below the averages. DB's debt/equity ratio of 2.9 is also higher than the average of 2.6. From the cash flow perspective, DB generates an operating cash flow of 2B. DB is currently trading below its book value of $75.25 per share.

Technically, DB is on the downtrend since early February, 2013. However, DB has started to rebound and is approaching its downtrend resistance in the last trading day, as seen from the chart below.

(click to enlarge)

Source: Finviz.com

Key Stats Comparison

Banco Santander

Lloyds Banking Group

Deutsche Bank AG

Industry Average

Cap Size

$75.45B

$54.76B

$38.26B

N/A

Closing Price (April 23, 2013)

$7.31

$3.11

$41.18

N/A

Beta

1.79

2.18

2.22

N/A

Revenue Growth (3 Year Average)

10.6

-11.0

9.0

17.6

Operating Margin, %, ttm

12.5%

11.4%

2.2%

46.4%

Net Margin, %, ttm

3.5%

-3.3%

0.7%

4.4%

ROE

2.5

-3.0%

0.4

3.6

ROA

0.1

-0.1

N/A

0.1

Debt/Equity

0.3

0.8

2.9

2.6

P/E

26.8

-23.6

120.5

-43.5

Forward P/E

27.2

21.7

6.2

14.3 (S&P 500's average)

Latest Dividend

$0.20

0

$0.98

N/A

Source: Morningstar, Reuters, and Google Finance

SAN has the highest margins, ROE, ROA and lowest debt/equity among three while LYG has the weakest fundamental numbers. SAN's higher valuation is justified with its higher revenue growth. Although both DB and SAN offer dividend, SAN's dividend yield is much higher.

Bottom Line

With the uncertain global economic condition and weakness in European market, it is still too early to bet on European banks for the medium term. However, with the recent rebound, it may worth a look for investors to review these European banks. Based on the fundamental numbers, SAN has much better numbers than DB and LYG and will be a good investment target to consider when the economy recovers in Europe.

Note: Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

Source: Banco Santander, Lloyds And Deutsche Bank: Rebounding For Real?