EFTA01385511.pdf

> Financials Deutsche Bank 0 Banco Santander - Ignacio Ulargui, BUY, close €5.6, €6.6 tgt, 17% upside • Santander is a very large cap stock (market cap > €90bn) with significant Santander Brasil is achieving market-leading loan growth earnings momentum and an attractive valuation. • We expect high-single-digit growth in Brazil over the next two years 6.4% 7.6% driven by the economic recovery. - NIl should rise at a c4% CAGR for 18-19E driven by stronger loan growth (we expect 10%112% in 18E/19E). Santander has been the most active in increasing lending, being the only Brazilian bank posting both YoY and QoQ growth. -6.8% - The economic recovery should help reduce cost of risk and hence provisions. We forecast a 59bps fall in the cost of risk through to 2019. 3016 4Q16 1O17 2Q17 3O17 • Costs and provisions should deliver profit growth in Spain. Popular's • Santander Brazil • Bradesco Itau • Banco do Brazil contribution could be bigger than expected driven by revenues and lower Source: Deutsche Bank estimates and company data provisions (the company expects the acquisition of Popular to deliver E550m of synergies), and NPAs should fall over time to non-material levels. • The USA has revenue and cost tailwinds to come, starting 1H18. Spanish NPAs over loans have been materially reduced • The UK is becoming less of a drag. Competition necessitates 18% management's margin caution, but the outlook on costs of risk and 16% 49% stake in Blackstone's operations is more positive. 14% vehicle • Client loyalty focus should bring fee income outperformance. Realising 12% the potential from the 131m customer base should deliver a 7% fee income 10% CAGR in 2018-19E 8% 6% r is Santander has a P/B of only 0.9x for an estimated 11.4% 18E RoTE. 4% • Catalysts — UK & Brazil newsflow and quarterly results 2% Related DB Research: 0% Pre Blackstone deal Post Blackstone deal Reaffirming targets. Buy reiterated (Ulargui) Souse: Deutsche Bank estimates. company data Deutsche Bank Research. European Equity Focus —Janutuy 2018 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0086797 CONFIDENTIAL SDNY_GM_00232981 EFTA01385511