Right now I’m analysing some of the most popular companies on the market to establish if they are attractive long-term buy and forget investments.
Today I’m looking at Banco Santander (LSE: BNC) (NYSE: SAN.US).
What is the sustainable competitive advantage?
Although Santander is not the biggest bank in the world ( it’s not even in the top 10), the Santander brand is actually the fourth most valuable financial brand in the world.
This is where the bank’s main competitive advantage lies, as while Santander cannot compete with some of its peers on size, the bank’s name is well known and respected around the world.
What’s more, unlike many of its peers, especially here in the UK, Santander commands respect as one of the few UK high-street lenders not to receive a bail-out during the financial crisis.
In addition, during the past five years, Santander has distributed 24%, or 26 billion euros of its profits to shareholders, an extremely good metric, considering the state of the banking industry over the past five years.
Still, Santander is having to wrestle for market share with its larger peers within all of its key markets. For example, the bank is having to compete with the world’s third largest bank by market capitalisation, HSBC, which operates within similar emerging markets to Santander but with better economies of scale resulting in wider profit margins.
In particular, HSBC’s pre-tax profit margin for 2012 was 24%, while Santander’s pre-tax margin stood at 8.5% for the same period, although this was mostly due to write-downs on toxic assets.
Company’s long-term outlook?
Santander’s strong performance during the last few turbulent years, gives me confidence in the company’s ability to continue generating profits and returning cash to investors for many years to come.
In addition, Santander is well positioned to benefit from emerging market financial services growth over the next few years and even decades. Moreover, although it could be too early to call, the bank is extremely well positioned to benefit from a recovery within Europe. Indeed, Santander has already sold off the majority of its toxic European assets so any further losses from its European operations should be limited.
Foolish summary
All in all, Santander’s resilience throughout the financial crisis despite its exposure to Europe gives me confidence in the bank’s ability to last for the long term. In addition, the banks reputation and cash return to shareholders lead me to conclude that overall, Santander is a good share to buy and forget.
