News today from Banco Santander (LSE: BNC) and Antofagasta (LSE: ANTO) failed to impress the market. In early trading, Santander was down 2.3% at 298p after releasing its 2015 results, while Antofagasta was off 4.3% at 360p on a Q4 production update.
However, I believe there are good reasons to be bullish about the prospects for these two stocks, and I see their current share prices as attractive.
1|2|3 go!
Santander group executive chairman Ana Botín described 2015 as a year in which “we have delivered ahead of plan in the right way, growing revenues by improving customer service and increasing loyal and digital customers”.
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Santander reported underlying revenue growth of 6% and a 13% uplift in profit, helping the bank to achieve a decent return on tangible equity of 11%. Balance sheet strength improved, with regulatory CET1 standing at 12.55%, significantly exceeding the 9.75% minimum required for 2016 by the European Central Bank.
There was a strong performance from the UK, which is Santander’s largest market, contributing 23% to group profit. The bank’s 1|2|3 product continued to be a driver for UK growth and market share gains, and has now attracted 4.6m customers in less than three years. 1|2|3 is also proving popular in Spain, the group’s third-largest market (12% of profit), with accounts being opened at a rate of more than 100,000 a month and 2m targeted by the end of 2016.
Of course, within an international bank there are always parts of the business that aren’t performing as well as others at any one time. In Santander’s second-largest market Brazil (19% of profit), an adverse movement in exchange rates turned a 9% local currency rise in the loan portfolio into a 19% drop.
Overall though, Santander delivered a good performance in 2015 and management is confident of reaching its targets for 2016. As such, I see this bank as an attractive buy on a price-to-tangible book value of 0.95, a price-to-earnings ratio of 8.7 and a dividend yield of 5.1%.
Hot prospects for Chile miner
Antofagasta chief executive Diego Hernández described 2015 as an “undeniably difficult” year in today’s Q4 update.
The Chilean copper specialist reported a production decline of 11% year-on-year after several operational setbacks. Inevitably the drop in production, combined with the weakening macro-environment and associated declining commodity prices, will show up as a hefty fall in revenue when the company releases its full-year results in March. Analysts had pencilled-in a 30% drop ahead of today’s update.
The good news is that even in the current bleak environment Antofagasta remains a profitable business due to its high-quality assets and low costs. Management has guided on a copper production increase of 13% to 17% for 2016, with group net cash costs falling 10% from $1.50/lb to $1.35/lb. This should enable the company to stay in the black, despite the copper price now being at its lowest in a decade.
With a relatively strong balance sheet and lower costs than many of its rivals, Antofagasta is well-placed to weather the current tough environment, which is seeing more and more higher-cost producers driven out of the market.
When the supply/demand balance swings and copper prices rise again — which, admittedly, could take some time — Antofagasta’s profits, dividends and share price should climb exponentially due to the high operational gearing of mining companies. It’s this prospect, rather than valuation ratios on current depressed earnings and dividends, that leads me to conclude Antofagasta is a buy with the shares at multi-year lows.
