Deutsche Bank resumes coverage of Banco Sabadell with “hold” rating, €3.30 target

Deutsche Bank has resumed coverage of Banco Sabadell (SABE) with a 'hold' rating and a €3.30 price target, slightly below its last close of €3.35. Analyst Alfredo Alonso indicated the target reflects a fair valuation considering stronger capital distribution guidance and an improved medium-term outlook, while also suggesting BBVA would likely need to raise its offer to acquire Sabadell. The brokerage further noted Sabadell's planned €2.5 billion extraordinary dividend from the TSB sale as a near-term attraction for investors.

Analysis

Deutsche Bank has initiated coverage of Banco Sabadell (SABE) with a 'hold' rating and a price target of €3.30, marginally below its recent close of €3.35. The valuation is considered fair, factoring in an improved medium-term outlook and stronger guidance on capital distribution, which suggests limited fundamental upside from current levels. The analysis is heavily influenced by the ongoing M&A situation with BBVA, whose offer was made 16 months prior. The analyst, Alfredo Alonso, posits that BBVA would likely need to raise its offer for the bid to succeed, and that Sabadell's current trading at a circa 10% discount to the offer price is justified. A significant near-term catalyst for Sabadell shareholders is a planned €2.5 billion extraordinary dividend from the sale of TSB, which provides a tangible return and could make holding the shares attractive irrespective of the M&A outcome. The stock's modest 1% decline following the note indicates the market is digesting a balanced view, weighing the fair valuation against the potential for a higher bid and the certainty of a large special dividend.

Key Decisions for Investors

• For current Banco Sabadell shareholders, the 'hold' rating suggests maintaining positions may be prudent to capture both the committed €2.5 billion extraordinary dividend and any potential upside from a revised, higher offer from BBVA.
• Investors considering a new position in Sabadell should weigh the M&A arbitrage opportunity against the risk that BBVA may not increase its bid, as the analyst views the current discount to the offer as justified.
• BBVA investors should monitor the acquisition proceedings, as a sweetened offer for Sabadell would have direct implications for BBVA's capital position and could pressure its share price.