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In November 2020, we were right in the middle of the pandemic. With lockdowns in the UK, the stock market was all over the place. Banco Santander (LSE: BNC) shares had lost over half their value in just nine months!
It was a scary time, for investors and the world at large.
However, let’s assume I’d taken the brave decision three years ago to buy £5,000 worth of Santander shares. How much would I have today? Let’s take a look.
I’d be up
The short answer is that I’d be laughing all the way to the, well, bank.
On 9 November 2020, the share price was 154p. Today, it’s at 311p. That represents a 101% gain, a healthy doubling. So my £5,000 investment would have grown to around £10,050.
What’s more, I’d have collected a fair few dividends along the way. Add those in and my total return would be more like £10,750.
This demonstrates how rewarding it can be to invest during periods of heightened fear and uncertainty.
Recent performance
Today, the Spanish bank continues to profit from higher interest rates. It achieved an attributable profit of €8.1bn in the first nine months of 2023, up 11% versus the same period last year.
In Q3, earnings per share rose 17% and it achieved a return on tangible equity (RoTE) of 14.8%, which is solid.
It also attracted 9m new customers, bringing the total to 166m globally.
For now, strong revenue growth in Europe and Mexico is offsetting a rise in provisions for bad loans. But it was recently reported that Santander is planning to sell toxic real estate assets worth up to €5bn.
As businesses and consumers adapt to higher rates, there’s a real risk that non-performing loans will become more of a concern.
Looking forward though, the bank was confident enough to launch a new share buyback programme. Once completed, it will have repurchased 9% of its shares since 2021. And the comfortably covered interim dividend increased by 39%.
Latin America growth
Last summer, Santander made an unsuccessful bid for Citibanamex, Mexico’s second-largest bank. If successful, it would have made Santander the largest lender in the country. However, it didn’t have the money to safely fund the acquisition.
Concerns about Santander’s capitalisation aren’t new and the bank even slashed its dividend in 2015 to bolster its capital base. The upshot of this failed bid is that the company is going to have to compete a bit harder and grow organically in the region.
Yet this effort will surely be worth it long term. That’s because 122m people in Latin America were considered unbanked in 2021, according to the World Bank.
Many millions more remain underbanked (unable to access a full range of banking options, such as credit cards or loans). In Mexico, for example, only around 10% of adults have a credit card, according to Nubank.
So this region represents an exciting multi-decade growth opportunity for Santander.
Attractive stock
On a forward-looking P/E ratio of 5.6, the stock looks great value to me.
Plus, the firm intends to increase shareholder rewards from the current rate of 40% of net profits to about 50% (half in dividends and half in share buybacks).
If I had spare cash, I’d certainly consider investing in Banco Santander shares.
