If there's one stock whose technical outlook is severely deteriorated, it's undoubtedly Banco Sabadell. Its share price has taken a dangerous turn and is currently trading below one euro. It has lost no less than 10% of its market capitalization in recent trading sessions, to the point that it has dragged down the entire banking sector. BBVA, Santander, Bankinter, Bankia, and even smaller national banks have all seen declines, making it the worst-performing sector so far this year.
The fact that it's currently trading below one euro is actually a very dangerous situation. Listed companies in this position very rarely manage to break out of this price level. In other words, they struggle to trade above one euro again, as has been demonstrated very recently with a number of stocks on the Spanish continuous market. There's a clear risk of them remaining stagnant for a more or less extended period. In any case, they aren't very attractive options for opening positions right now.
The trigger for this weak position at Banco Sabadell has been its poor business results in the last fiscal year, 2018. These results failed to convince various financial institutions, and as a consequence, selling pressure prevailed over buying pressure. However, this pressure was unusually intense for such cases, causing its shares to plummet by no less than 7% in a single trading session. This has had a clear and direct impact on the other stocks that make up the powerful Spanish banking sector.
Sabadell: very weak results
The fact that this major bank's shares are currently trading between €0,80 and €0,90 is due to the publication of its 2018 financial results. Banco Sabadell Group closed the year with a net profit of €328,1 million, following the completion of the TSB migration and the balance sheet cleanup, which resulted in one-off impacts totaling €637,1 million. Excluding these extraordinary items, net profit grew by 9,6% year-on-year, reaching €783,3 million.
Regarding the banking business (net interest income + net fees), the strength of the business is evident, with a 4,1% year-on-year increase and 2,4% growth compared to the previous quarter. At the group level, year-on-year growth is 2,9%. Furthermore, net interest income reached €3.675,2 million at the close of 2018, representing growth of just 0,7%. Excluding TSB, net interest income amounted to €2.675,5 million, reflecting year-on-year and quarter-on-quarter growth of 1,1%, driven by volume growth.
Badly picked up by investors
These annual accounts have not been well received by various financial players. On the contrary, they have triggered a massive sell-off in the face of a very precarious situation for this bank, which is included in the Ibex 35, the benchmark index of Spanish equities. The bank's declining investor confidence is having a very negative impact, to the point that some financial analysts have compared its situation to that of Banco Popular . However, this may be a somewhat imprudent assertion under the current circumstances.
On the other hand, it cannot be forgotten that the shareholders of this national bank have lost in the last thirteen months almost 45% in the valuation of this stock market value. It is a lot of money that has evaporated in a very short space of time, beyond what can be lost from these precise moments. Because in effect, there are already some financial agents that have valued their share prices at levels of 0,50 and 0,60 euros. What would be a new bearish section that would leave many small and medium investors caught.
Upcoming dividend distribution
It has also been announced that the board of directors has approved the distribution of a supplementary cash dividend of €0,01 per share, in addition to the €0,02 per share already distributed. This brings the total to €0,03 per share, representing a 50% payout ratio . In this respect, the bank's shares remain among the most profitable in terms of shareholder payouts, despite the reduction in this stock market dividend, which will be implemented in the coming months. This aligns with the targets of other companies listed on the Spanish stock exchange.
It has also been noted that Banco Sabadell is consolidating its operations in Mexico to strengthen its business in the Central American country. In any case, the operation reflects the bank's positive results in Mexico, which continues to exceed its growth expectations year after year, closing 2018 with a loan portfolio 37% higher than the previous year's results (2017) and an estimated 316% increase in deposits compared to 2017.
Bounces in the next few months
In any case, it's quite possible that in the coming weeks or even months, the stock could experience some significant rebounds. This is a consequence of the downward trend it has developed, a rebound that would adjust the current supply and demand for its shares. This is true regardless of other technical considerations and even from the perspective of its fundamental indicators. Indeed, it's perfectly normal for rebounds, and even strong ones, to occur in the coming days, but we mustn't forget that the underlying trend of the stock is clearly bearish.
Until it recovers to the euro level, it will be very difficult for it to be a profitable stock from this point forward. It's worth remembering that until recently, it was trading at around 2 or 3 euros per share . From this perspective, Banco Sabadell shares cannot be considered cheap. Far from it; on the contrary, this is the price dictated by the current equity markets. However, the uncertainty surrounding the stock is not helping the listed company stabilize its share price. Quite the opposite, in fact; it is breaking through support level after support level.
Bad situation of banks
Amid the overall negative sentiment in the banking sector, if you're looking to invest in this segment, you have other, potentially more attractive options at the moment. In this regard, Banco Santander is currently performing best despite its downward trend. Its shares are trading between €4 and €5. Furthermore, it's the financial institution showing the least volatility in its share price, without experiencing the sharp declines seen recently by Sabadell and Caixabank.
BBVA, for its part, is trading at a significant discount due to its notable declines, which have led it to break through the strong support level of €5. To such an extent that its market capitalization has become comparable to that of its competitor, the bank chaired by Ana Patricia BotÃn. This comes at a time when a new restructuring of the banking sector is being considered , with potential acquisitions that could stimulate greater volatility among all the sector's players.
Wait before taking positions
Given this overall scenario, it's much better to stay out of the market, or at least the banking sector. After all, there are still negative surprises to come that could cause you to lose a lot of money on your open positions. It's advisable, therefore, to wait for the possibility of buying at more competitive prices than those currently being offered. Discounts could reach up to 10% within a three- to six-month timeframe. There's no need to get ahead of yourself, and prudence will be a valuable asset right now.
It cannot be forgotten that the banking sector in general is being one of the most active at the beginning of the year. Although this time, from a negative point of view that you cannot abstract from to develop any compelling investment strategy. Not surprisingly, there is much you can lose along the way and it is convenient that you take it into account right now. As a formula to avoid losses in your securities portfolio at the end of the year. Beyond other technical considerations and even from the point of view of its fundamental references. Because indeed, it is completely normal for rebounds to occur in the next few days, and of great intensity.