Santander Earnings: Solid Top-Line Results, Improved Efficiency and Operating Leverage

Narrow-moat Santander continues to benefit from the elevated rate environment, reporting a 13% increase in net interest income (excluding currency effects) in the first quarter of 2024 compared with the same quarter a year earlier. At the same time, it kept an eye on cost control, improving its efficiency ratio by 150 basis points over the last year and showing one of the lowest efficiency ratios in the industry at 42.5%. Despite being subject to a temporary Spanish government levy for interest income, Santander reported a 15% return on tangible equity for the last quarter, which differentiates it as one of the most profitable banks in our coverage. We keep our fair value estimate of EUR 5.80 per share as we believe higher-than-expected growth in the first quarter could be offset by expected rate cuts later in the year.