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BBVA

Banco Bilbao Vizcaya Argentaria, S.A.

Comprehensive Equity Analysis Report

Fair Value Estimate (Comparable Market)

Comparable Market Analysis Valuation:

Industry P/E Multiple Approach:
- Using an average P/E ratio of 12 (based on comparable companies in the industry).
- Applying this multiple to the most recent net income of $9.67M results in a market valuation of $115.99M.
Intrinsic Value Per Share Based on Market Comparables:
- With 5.77M diluted shares outstanding, the market-based intrinsic stock value is approximately $20.10 per share.

Expanded Comparable Market Analysis Valuation:

Price-to-Earnings (P/E) Approach:
- Using an industry P/E of 12, the valuation is $115.99M.
- Intrinsic value per share: $20.10.
Price-to-Sales (P/S) Approach:
- Using an industry P/S of 3.5, the valuation is $124.19M.
- Intrinsic value per share: $21.52.
EV/EBITDA Approach:
- Using an industry EV/EBITDA multiple of 10, the valuation is $111.99M.
- Intrinsic value per share: $19.41.

Comparison:

DCF Valuation: $5.26 per share
Market-Based Valuations:
- P/E-based: $20.10 per share
- P/S-based: $21.52 per share
- EV/EBITDA-based: $19.41 per share

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Fair Value Estimate (DCF)

Justification of the DCF Valuation

Revenue and Growth Trends:
- The company's revenue has grown from $22.99B in 2021 to $35.48B in 2024, reflecting a strong historical growth rate.
- The average revenue growth rate was used to project future free cash flows, ensuring continuity based on past performance.
Free Cash Flow Estimation:
- Net income was adjusted by adding back depreciation and subtracting capital expenditures, assuming depreciation roughly offsets capital expenditures.
- This conservative approach ensures that projected cash flows reflect true operational efficiency.
Discount Rate Selection:
- A 10% discount rate was used to reflect the risk profile of the business.
- This rate accounts for potential uncertainties, including economic conditions, interest rates, and company-specific risks.
Terminal Value Calculation:
- A 3% perpetual growth rate was applied to estimate the long-term value of the company beyond the forecast period.
- This rate is slightly below historical revenue growth, ensuring a realistic long-term assumption.
Enterprise Value & Share Price:
- Discounted cash flows and terminal value summed up to an enterprise value of $30.38B.
- With 5.77M shares outstanding, the intrinsic stock value is approximately $5.26 per share.
The valuation is conservative but realistic, as it accounts for historical trends, risk, and sustainable future growth.

Fair Value Estimate (Comparable Market)

Comparable Market Analysis Valuation:

Industry P/E Multiple Approach:
- Using an average P/E ratio of 12 (based on comparable companies in the industry).
- Applying this multiple to the most recent net income of $9.67M results in a market valuation of $115.99M.
Intrinsic Value Per Share Based on Market Comparables:
- With 5.77M diluted shares outstanding, the market-based intrinsic stock value is approximately $20.10 per share.

Expanded Comparable Market Analysis Valuation:

Price-to-Earnings (P/E) Approach:
- Using an industry P/E of 12, the valuation is $115.99M.
- Intrinsic value per share: $20.10.
Price-to-Sales (P/S) Approach:
- Using an industry P/S of 3.5, the valuation is $124.19M.
- Intrinsic value per share: $21.52.
EV/EBITDA Approach:
- Using an industry EV/EBITDA multiple of 10, the valuation is $111.99M.
- Intrinsic value per share: $19.41.

Comparison:

DCF Valuation: $5.26 per share
Market-Based Valuations:
- P/E-based: $20.10 per share
- P/S-based: $21.52 per share
- EV/EBITDA-based: $19.41 per share

8-K and Annual Report Analysis

BBVA Stock: Major Risks & Opportunities Impacting Enterprise Value

1. Key Risks

Regulatory & Political Risks

Banco Sabadell Takeover Uncertainty

BBVA is pursuing a hostile takeover of Banco Sabadell, but the deal faces regulatory hurdles from Spanish and European authorities.
If the deal is rejected or delayed, it could impact BBVA’s growth strategy and investor confidence.

Temporary Banking Tax in Spain

BBVA paid €285M in 2024 due to Spain’s temporary banking tax, which reduces profitability.
If extended or made permanent, it could drag earnings further.

Geopolitical & Emerging Market Risks

Turkey and South America are key markets but face economic instability, currency depreciation, and inflation risks.
Argentina & Venezuela remain particularly volatile, impacting BBVA’s regional revenue reliability.

Financial & Market Risks

Net Interest Margin (NIM) Pressure

Interest rate cuts by ECB or Fed could squeeze BBVA’s net interest income growth, a key earnings driver.
If global rates decline faster than expected, profit margins may suffer.

Higher Cost of Risk & Credit Quality

Loan loss provisions surged by +32.4% YoY in 2024, reflecting increased credit risk exposure.
If economic conditions worsen, higher default rates in retail and corporate loans could hurt BBVA’s balance sheet.

Rising Operating Costs

BBVA’s operating expenses grew 18.3% YoY, driven by workforce expansion and inflationary pressures.
If cost discipline does not improve, it could erode efficiency gains and profit growth.

Competitive & Technological Risks

Fintech & Challenger Bank Disruption

Digital-first fintech competitors and neobanks (e.g., Revolut, N26) are attracting younger customers with low-cost, mobile-first banking.
If BBVA fails to innovate fast enough, customer attrition could increase.

Cybersecurity & IT Infrastructure Risks

BBVA’s heavy investment in digital banking (66% of new customers acquired digitally) brings higher cybersecurity risks.
Data breaches or cyberattacks could result in regulatory fines and reputational damage.

2. Major Opportunities

Financial & Business Growth Drivers

Expansion in High-Growth Markets

Mexico (+5.8% YoY net profit growth) remains BBVA’s strongest contributor to earnings, followed by Spain.
BBVA is aggressively growing in Turkey & South America, capitalizing on high-interest-rate environments.

Continued Loan & Deposit Growth

Loan growth rebounded to +9.0% in Q4 2024, exceeding prior forecasts.
Deposits increased by +8.3%, improving liquidity and funding costs.

Potential Upside from Banco Sabadell Merger

If BBVA successfully acquires Sabadell, it could create €200B+ in additional assets, boosting market share in Spain.
The deal would enhance economies of scale, leading to higher efficiency and profit synergies.

Technology & Digital Innovation

Industry-Leading Digital Transformation

77.2M active customers, with a 66% digital acquisition rate, positions BBVA as a digital banking leader in Europe and Latin America.
Further investment in AI-driven financial services and mobile banking expansion could enhance profitability.

Sustainability & ESG Leadership

BBVA achieved its €300B sustainable finance target one year early, outpacing European peers.
Expanding green loans, bonds, and ESG-focused investment products could attract more institutional investors.

3. Enterprise Value Impact Summary

Factor	Risks (Enterprise Value Downside)	Opportunities (Enterprise Value Upside)
Regulatory & Political	Banking tax, Sabadell deal rejection, emerging market risks	Sabadell acquisition success, market expansion in Latin America
Financial Performance	Margin pressure, rising costs, higher credit risk	Loan & deposit growth, continued NII expansion
Competitive & Digital	Fintech disruption, cybersecurity threats	Leading digital banking, AI innovation
Sustainability & ESG	Regulatory ESG pressure, execution risks	First-mover in sustainable finance

Final Takeaway:

Biggest Risks: Regulatory uncertainty (Sabadell deal, banking tax), inflation-driven cost increases, interest rate cuts.
Biggest Upside Opportunities: Market expansion (Mexico, Turkey, ESG), Sabadell acquisition, digital leadership.

BBVA’s enterprise value will rise if it successfully executes M&A, grows in key markets, and keeps digital momentum—but regulatory & macro risks could weigh on its valuation.

8-K Analysis

Analysis of BBVA’s Filings: Risks, Weaknesses, Opportunities, Key Trends, and Threats from Quarterly 2024 filings

After reviewing the provided filings, here is a comprehensive analysis of BBVA’s financial and strategic position:

1. Key Trends

Financial Performance and Growth

Record Profits: BBVA recorded its highest net attributable profit at €10.054 billion for 2024, a 25.4% YoY increase.
Revenue Growth: The bank saw an increase in net interest income (NII) and fees by 13.2% YoY, indicating strong core banking revenue.
Loan Growth: Loans and advances to customers increased by 9.2% in 2024, primarily driven by corporate loans (+14.7%).
Digital Expansion: Active customers reached 77.2 million, with 66% of new acquisitions coming through digital channels.

Operational Efficiency & Capital Strength

Improved Efficiency: The efficiency ratio stood at 40.0% (better than most European peers).
Strong Capital Base: BBVA maintains a CET1 ratio of 12.88%, exceeding regulatory minimums.

Market Expansion & Sustainability

Sustainable Financing: BBVA has surpassed its €300 billion sustainability financing target ahead of schedule, reaching €99 billion in 2024.
Digital & International Expansion: Continued customer acquisition, especially in Mexico, Turkey, and South America, driving profit diversification.

2. Risks & Weaknesses

Regulatory & Legal Risks

Temporary Banking Tax in Spain: BBVA had to absorb a €285 million tax on financial institutions, reducing profits.
Sabadell Merger Uncertainty: The attempted acquisition of Banco Sabadell has regulatory hurdles and faced initial rejection.
European Central Bank Scrutiny: BBVA’s acquisition plans are subject to ECB and Bank of Spain approvals, creating uncertainty.

Cost Pressures & Inflation

Rising Operating Expenses: Costs increased by 18.3% YoY, driven by workforce expansion and inflationary pressures.
Higher Loan Loss Provisions: Impairment on financial assets rose 32.4% YoY, indicating potential credit risks.

Regional Exposure Risks

Turkey Volatility: While Turkey contributed €611 million in profits, the country remains a high-risk area due to economic instability and currency fluctuations.
Latin America Market Risks: Despite strong performance in Mexico and South America, political and economic uncertainty in these regions could impact future results.

3. Opportunities

Strategic Expansion & Digital Transformation

Growing in Latin America & Turkey: BBVA continues to increase market share in Mexico, South America, and Turkey, leveraging high-yield retail and corporate lending.
Further Digitalization: BBVA’s leadership in mobile banking (66% of new acquisitions) positions it well for continued market penetration and cost reduction.
Sabadell Acquisition: If successful, this deal would strengthen BBVA’s footprint in Spain, adding over €250 billion in assets and consolidating its market position.

Sustainability Leadership

Early Achievement of ESG Goals: BBVA reached its sustainable financing goal one year ahead of schedule, setting it apart from competitors.
Green Bond & ESG Lending Growth: Strong opportunities in green finance and socially responsible investing, areas where BBVA is already a leader.

4. Threats

Economic Slowdown & Interest Rate Risk

Potential Interest Rate Cuts: If ECB or Fed rates decrease, BBVA’s net interest margin (NIM) could decline, affecting revenue growth.
Global Economic Uncertainty: High inflation, potential recessions in key markets (EU, Turkey, South America), and geopolitical risks (e.g., Ukraine war, China slowdown) could impact credit quality and demand.

Competitive & Technological Disruptions

Fintech & Challenger Banks: Digital-native competitors pose a risk, forcing BBVA to continue investing heavily in digital transformation.
Cybersecurity & IT Risks: Increased reliance on digital banking and cloud services raises the risk of data breaches and cyberattacks, which could hurt reputation and financial stability.

Conclusion: Strong Performance but Facing Challenges

Strengths: Record profits, digital leadership, strong loan growth, and sustainability achievements.
Weaknesses: High costs, regulatory risks (Sabadell merger, banking tax), and inflation-driven expense growth.
Opportunities: Further expansion in Mexico, Turkey, and digital banking, as well as ESG financing growth.
Threats: Economic downturn risks, regulatory scrutiny, and increased competition from fintech.

BBVA is in a strong position but must navigate regulatory challenges, cost inflation, and potential interest rate reductions to maintain momentum.

Annual Report (10-K) Analysis

Analysis of Quarterly Reports and Changes 2024 - 2Q - 4Q

1. Financial Performance Over Time

Metric	2Q24 (June 30, 2024)	9M24 (Sept 30, 2024)	4Q24 (Dec 31, 2024)	Change Over Time
Net Attributable Profit	€4.994B (+28.8% YoY)	€7.622B (+27.9% YoY)	€10.054B (+25.4% YoY)	Accelerated profit growth
Net Interest Income (NII)	€12.99B (+13.9%)	€18.86B (+5.7%)	€25.27B (+9.4%)	Growth rate slowed in 2H24
Total Assets	€759.5B (-0.4%)	€769.3B (+1.5%)	€772.4B (-0.4%)	Slight asset decline YoY
Loans & Advances	€405.0B (+6.3%)	€397.9B (+2.7%)	€424.0B (+9.0%)	Loan growth rebounded in Q4
Customer Deposits	€430.9B (+7.1%)	€437.8B (+8.4%)	€447.6B (+8.3%)	Consistent deposit growth
Efficiency Ratio	39.3% (Better)	38.9% (Improved)	40.0% (Weakened)	Efficiency slightly declined in Q4
CET1 Capital Ratio	12.75%	12.84%	12.88%	Slight improvement
ROE	19.1%	19.2%	18.9%	Stable but slightly lower in Q4

2. Key Changes in Guidance and Outlook

Category	2Q24 Guidance	4Q24 Guidance Update	Change
Profit Growth	Strong YoY growth, driven by interest income & fees	Expecting high double-digit profit growth in 2025, led by efficiency & digitalization	More confident long-term outlook
Loans & Deposits	Expecting high single-digit growth in 2024	Delivered 9.0% loan growth in 2024; sees continued strength in 2025	Loan growth exceeded mid-year expectations
Cost of Risk	1.42% (rising)	1.43% (slight increase but stabilizing)	Risk costs slightly higher but under control
Sustainability Targets	€300B target by 2025	Reached €300B goal 1 year early	Surpassed expectations
Banco Sabadell Deal	Launched hostile takeover bid	Still pending regulatory approval	M&A remains uncertain

3. Major Takeaways

Profitability Stronger Than Expected:

Net profit exceeded mid-year expectations (€10B vs. €8B in 2023).
Loan and deposit growth continued to strengthen. Rising Costs & Efficiency Concerns:
Efficiency ratio worsened slightly (from 38.9% to 40.0%), indicating cost pressures.
Operating expenses up 18.3% YoY, primarily due to inflation and workforce expansion.

Regulatory & M&A Uncertainty:

Banco Sabadell acquisition still uncertain, facing approval hurdles.
Temporary banking tax (€285M) remains a drag on earnings.

Guidance More Optimistic for 2025:

BBVA expects continued strong revenue growth and digital expansion.
Loan growth exceeded mid-year targets, signaling confidence in future lending.

Conclusion

Between 2Q24 and 4Q24, BBVA outperformed on profitability and loan growth, but costs and regulatory risks remain challenges. The Banco Sabadell acquisition is still unresolved, and 2025 guidance remains bullish on growth, efficiency, and digital transformation.