BBVXF - BBVA: Ride On The Current Momentum The Drivers Are Solid

2023-04-21 10:39:17 ET

Summary

• Banco Bilbao Vizcaya Argentaria, S.A.'s current encouraging momentum may be traced back to a road of reform that hit its zenith in 2017.
• BBVA is not only riding a wave of success but also appears inexpensive and offers attractive returns to shareholders.
• The changing banking and financial markets may pose risks to investors buying BBVA stock.

Investment Thesis

Banco Bilbao Vizcaya Argentaria, S.A. ([[BBVA]], [[BBVXF]]) is a banking group organized around three sectors of activity. The company started a transformational path that reached its apex in 2017, which explains its present, gratifying momentum.

The BBVA Group's transformation effort achieved great strides in 2017, with the support of the Group's Purpose and six Strategic Priorities. With the new motto "Creating Opportunities" and the Values created to guide the organization's conduct, the Bank's strategy has been strengthened with a focus on digitalization and customer experience, a crucial transformation process that the financial sector must undergo to remain competitive and adapt to the new environment.

As early mentioned, the viability of these initiatives can be explained by their current momentum. Over the last year, BBVA has had a momentum of 36.88% compared to the S&P 500 (SP500) momentum of -7.39%. This data signifies how far this organization is ahead of its peers. I believe the company will be able to maintain its positive momentum because the strategies it has adopted along its transformational path are both highly competitive and extremely sustainable.

Based on this information, I am optimistic about this stock and recommend it. The company is not only riding a wave of success but also appears inexpensive and offers attractive returns to shareholders.

Transformative Journey

Recent years have seen a global onslaught of regulatory reform introduced to the financial industry, resulting in changes to regulations in a wide variety of areas, including those pertaining to solvency, liquidity, separation of activities, bank resolution, and investment banking. Financial institutions were compelled to implement changes and reorganize their internal processes in response to these market forces.

BBVA was not exceptional, and the company embarked on a transformative journey . The BBVA Group achieved great progress on its transformation effort in 2017, anchored by its Purpose and six Strategic Priorities. The Bank's strategy has been strengthened with a focus on digitalization and client experience under the new tagline "Creating Opportunities," as well as the Organization's Values. A critical transition to adapt to the current financial industry climate.

BBVA's mission, stated in its 2017 annual report, is to "bring the age of opportunity to everyone" by providing products and services that enable individuals to make more informed financial decisions and move closer to their life goals. To this end, and per its Purpose, the Group has been actively pursuing its six Strategic Priorities to advance this transition.

These strategic priorities are detailed below;

1. A new standard in customer experience

With a focus on empowering its clients and providing them with tailored recommendations, BBVA Group has prioritized improving the customer service experience. In 2017, BBVA boosted its clients' agency by increasing the amount of do-it-yourself products available, enabling consumers to transact with BBVA whenever and wherever they pleased.

BBVA's whole business model is built around providing superior service to its clientele, aiming to be the industry standard in customer satisfaction in every market in which the company operates.

The high NPS score of 9 reflects the high level of customer satisfaction experienced by the company's clientele, which is quite encouraging and augurs well for the retention and acquisition of new clients. Future success seems promising with this strategy in play.

2. Digital sales

At BBVA, increasing business via digital channels is critical to the company's ongoing digital transformation. To that end, the Bank is building out a comprehensive suite of digital services.

BBVA adjusts its relationship strategy to serve its clients' multi-channel needs better. By the end of March 2022, BBVA's entire client base had increased by 36 percent to 43.6 million, according to the company's first-quarter report. The acquisition of digital clients increased by 81% from the first quarter of 2021 to the current quarter. As a result of this growth, 70% of BBVA's total customers are now digital.

The BBVA Group posted a net attributable profit of €1.65 billion in Q1 2022, an increase of 36.4 percent year over year.

It is no doubt that this strategy is paying off. Given that the world is becoming more digital, I think these numbers will grow over time, making the company more successful.

3. New business models

The Group places a high priority on the research and development of innovative business concepts. Five main drivers have contributed to creating and implementing innovative company models: Exploring, building, collaborating, acquiring and Investing, and venture capital. These strategies have been implemented to broaden the company's revenue base. Although the company has not disclosed any hard data on how much money it has made owing to these endeavors, it is prudent to believe that it will be successful, given that diversity is a tried and true hedge against economic uncertainty.

4. Optimize capital allocation

This top priority's stated goal is to streamline operations and concentrate efforts where they will have the greatest impact on the company's bottom line. One of the most important aspects of running a smooth operation is allocating resources effectively. Here, BBVA prioritizes investing in the businesses with the highest potential for return on investment.

The Bank also uses a formula to determine how much capital to allocate to each activity, with the allocations tied to variable pricing. For this reason, the Group's loan transactions must always exceed the required minimal rates of return on investment. The bottom line has responded quickly to the Bank's new approach to banking, which places a premium on maximizing profits in every deal. In particular, at the end of 2021, the RORWA had increased to 2.01%, an increase of 85 basis points from the end of the previous year.

5. Unrivaled efficiency

BBVA's transformation plan places a premium on efficiency as the company contends with declining industry profits. A top priority is a new organizational model that is as flexible, straightforward, and mechanized as feasible.

BBVA, therefore, 2017 determined the critical levers and created the action plans required to make this shift a reality. So, the Bank changed how it does business down to its distribution model, systems architecture, operations model, and internal structures and procedures. This was done without sacrificing the company's commitment to setting a new bar for customer service. With this initiative, the company is eyeing an efficiency ratio of 42% by 2025 which is feasible given its optimal resource allocation.

6. A first-class workforce

Having "a first-class workforce" is one of BBVA Group's six Strategic Priorities because its employees are the company's most valuable resource. This requires actively seeking, vetting, hiring, and developing the best possible talent in every area.

New people management models and ways of working have been developed by BBVA Group, allowing the Bank to continue transforming its operational model and bolstering the company's potential to become a purpose-driven organization, one in which employees are genuinely inspired and motivated to work toward the same Purpose: making the era of opportunity accessible to all.

I think the aforementioned strategies working together are driving the company right now, and they'll remain to do that for the foreseeable future.

BBVA Strong Momentum

Momentum investing involves following a stock's recent trend, which can go either way. In the "long" perspective, investors will "buy high, but hoping to sell even higher." For investors using this strategy, stock price patterns are crucial since once a stock starts moving, it's likely to keep going that way. The idea is to make timely and profitable trades when a stock follows a predetermined course.

In light of this history, I believe that momentum-based investors can capitalize on BBVA's present favorable momentum. Below is a summary of the company's momentum.

Given the firm's prospective initiatives, which appear to be driving its progress, this company is an excellent investment, and its current momentum is highly satisfying to investors.

Bottom Line: Is BBVA Worthy Your Stake?

Here are the reasons why, as an investor, I believe BBVA is a good investment, given the aforementioned strengths of the company. To begin, relative valuation indicators suggest the company is priced too low. They have a lower P/E than the market average of 9.46 and a lower P/B than the market average of 1.05, coming in at 7.07 and 0.89, respectively. This indicates that the stock trades at a significant discount to its competitors. The market is optimistic about the company's future earnings, as indicated by the P/E FWD of 5.45X.

Further, the share price return and the total shareholder return should be considered for any particular stock. The TSR is a method of calculating return that considers the value of cash dividends (on the assumption that any dividend received was reinvested) and the estimated value of any discounted capital raising and spin-off transactions.

The TSR for Banco Bilbao Vizcaya Argentaria during the past three years has been around 147%. That is more than its share price return, which was around 120%. Thus, the company's dividend payments have increased total shareholder return. I'm happy to report that over the course of a year, stockholders obtained a total shareholder return of roughly 41%. And the dividend is included in that. That indicates that the company has recently been doing better, as it is better than the annualized return of 5% over half a decade. In the best-case scenario, this might allude to some genuine company momentum, suggesting that this might be a fantastic time to grow your stake.

However, as investors purchase this stock, they should be cautious of the changing banking and financial markets, which may provide unprecedented risks, as mentioned in the investing thesis section.

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