Goldman Sachs initiates coverage of Banco Sabadell with a Sell rating and a €3.10 target price

Overview

Goldman Sachs initiates coverage of Banco de Sabadell SA with a Sell rating. The report acknowledges that Sabadell has a strong franchise in Spanish SME and corporate banking, operates in a relatively resilient Spanish macroeconomic environment, and has a stronger capital position and greater capacity for shareholder distributions following the sale of TSB. However, Goldman Sachs believes these advantages are already substantially reflected in the share price and valuation, leaving the current risk-reward unattractive.

Core views

The core views are: first, Sabadell’s medium-term growth outlook is weaker than that of European banking peers, with loan growth, fee income growth, and EPS growth all below the coverage average; second, profitability is at the lower end of the coverage universe, while its cost-to-income ratio is also above the average of major Spanish peers; third, SABE’s valuation based on Goldman Sachs’ 2026-2028E earnings forecasts is slightly above the European banking coverage average, but its earnings growth, ROTE, and diversification are insufficient to support a premium.

Analysis framework

The report applies a framework combining fundamental forecasts, peer comparisons, and P/E valuation. Goldman Sachs compares Sabadell’s loan growth, fee income, net interest income, cost-to-income ratio, ROTE, CET1, shareholder yield, P/E, and P/TBV with European banks and Spanish banking peers, and derives the target price by applying a 10.5x P/E multiple to a 75:25 weighted result of 2027E and 2028E EPS.

Methodology notes

• Valuation methodsMulti-period weighted P/E valuation

  A 10.5x P/E multiple applied to a 75:25 weighted result of 2027E and 2028E EPS

  The valuation multiple is below the Southern European banking coverage average, reflecting Sabadell’s below-average growth outlook, lower profitability, and limited business diversification.

• Peer comparisonEuropean banking coverage comparison

  Comparing Sabadell with European banks and Spanish banking peers

  Comparison dimensions include EPS growth, loan growth, fee growth, ROTE, cost-to-income ratio, valuation multiples, and shareholder yield, to assess whether the valuation is consistent with growth and earnings quality.

• Earnings driversNet interest income and loan structure analysis

  NII as a share of revenue, loan structure, deposit beta, and ALCO portfolio

  Sabadell’s earnings are highly dependent on net interest income. The report assesses how interest rates, loan growth, deposit costs, and the ALCO portfolio support the future recovery of NII.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• SABE.MC

  Core research subject

  Strengths

  Strong Spanish SME banking franchise, solid domestic loan base, ample capital following the TSB sale, and relatively attractive shareholder returns.

  Weaknesses

  Lower medium-term EPS growth than peers, high dependence of business revenue on NII, weaker fee growth, insufficient profitability and diversification, and a relatively high cost-to-income ratio.

  Comparison

  Compared with Goldman Sachs’ European banking coverage average, Sabadell has lower EPS CAGR and profitability but a slight valuation premium; compared with major Spanish peers, its cost-to-income ratio is higher.

  Risks

  Upside risks to the Sell view include stronger-than-expected Spanish economic and loan growth, a stronger NII recovery, higher-than-expected capital returns, or renewed expectations of mergers and acquisitions or restructuring.

• European banking peers

  Benchmark for valuation and earnings comparisons

  Strengths

  Some peers have higher EPS growth, stronger revenue diversification, or better cost efficiency.

  Weaknesses

  Peers also face declining interest rates, competition, and macroeconomic volatility.

  Comparison

  Goldman Sachs believes Sabadell has weaker growth than the European banking average but trades at a slightly higher valuation based on its forecasts.

  Risks

  A broad re-rating of European banks could reduce Sabadell’s relative valuation pressure.

• Banco Santander

  TSB transaction buyer and Spanish banking peer

  Strengths

  Strengthens its UK business through the acquisition of TSB and is the counterparty to Sabadell’s capital-releasing sale of TSB.

  Weaknesses

  The report does not analyze Santander as a primary investment subject.

  Comparison

  Following the sale of TSB, Sabadell exits the UK retail banking market and becomes more focused on Spain.

  Risks

  Following the transaction, Sabadell must comply with a 24-month non-compete clause in the UK retail market.

• BBVA

  Potential acquirer and Spanish banking peer

  Strengths

  Previously proposed an all-share acquisition of Sabadell, seeking cost and funding synergies through the merger.

  Weaknesses

  The acquisition failed in October 2025, securing only 25.47% of voting rights, below the 50.01% minimum requirement.

  Comparison

  After the failed BBVA transaction, Sabadell remains independent and emphasizes digital transformation and shareholder distributions.

  Risks

  A revival of M&A expectations could alter Sabadell’s valuation framework.

Key data

• RatingSellGoldman Sachs initiates coverage with a Sell rating.
• 12-month target price€3.10Implies approximately 3.8% downside from the current price of €3.22.
• Current price€3.22Price disclosed on the report cover.
• Market capitalization€15.9bn / $18.1bnDisclosed in the report’s Key Data section.
• 3-month average daily value traded€76.2mn / $88.6mnDisclosed in the report’s Key Data section.
• SME and corporate loans as a share of domestic loansApproximately 43%This business supports a higher net interest margin but carries higher credit risk.
• Domestic loans as a share of total loansApproximately 86%International loans mainly come from Mexico and the United States.
• NII as a share of revenueApproximately 73%As of 1Q26, reflecting high interest-rate sensitivity.
• TSB sale consideration£2.863bn, approximately €3.3bnThe transaction was completed on April 30, 2026, with Banco Santander as the buyer.
• Capital impact of TSB sale>400bps CET1Supports a special dividend and subsequent shareholder returns.
• Special cash dividend€0.50/shareAnnounced by the board and paid on May 29, 2026.
• 2027E total shareholder yieldApproximately 8%Slightly above Goldman Sachs’ European banking coverage average.
• 2025-2028E EPS CAGRBelow 8%Below the European banking coverage average of approximately 12%.
• 2027E ROTE14.1%Report forecast, still at the lower end of the coverage universe.
• 2027E P/E11.2xBased on Goldman Sachs’ EPS forecast.
• 2027E CET1 ratio13.3%The capital position is expected to remain comfortable.

Impact & implications

For investors, the report conveys a defensively negative signal: Sabadell has advantages in shareholder returns and Spanish SME banking, but the valuation has already anticipated these strengths, leaving limited margin of safety if future loan growth, fee income, or NII recovery falls short of expectations. Conversely, a stronger-than-expected Spanish macroeconomic environment, loan demand, interest-rate path, or capital distribution could represent upside risks.

Risks

• Spanish macroeconomic growth or credit demand could exceed Goldman Sachs’ expectations, driving upward revisions to loan growth and revenue.
• Net interest income could recover more strongly than expected, particularly if deposit beta declines, ALCO portfolio returns improve, or the interest-rate path is more favorable than assumed.
• Capital returns could exceed expectations, further increasing dividend or buyback yields.
• Asset quality could remain resilient, with credit costs related to SME lending below historical experience.
• BBVA or other potential M&A expectations could revive, driving a higher valuation.
• Intensifying competition, slower mortgage and commercial loan growth, continued fee pressure, or insufficient cost-efficiency improvements would reinforce the Sell view.

What to watch

• Whether NII recovers from the 1Q26 low in subsequent quarters of 2026 as expected by management and Goldman Sachs.
• Whether Spanish mortgage, SME, and corporate loan growth can reach the approximately 4% overall loan growth embedded in Goldman Sachs’ model.
• Whether the CET1 ratio remains around 13%, and the pace of dividend and buyback execution.
• Whether fee income growth and pricing pressure improve.
• Whether the cost-to-income ratio can improve to approximately 44% in 2027E and narrow the gap with major Spanish peers.
• Asset quality, cost of risk, and changes in the NPL ratio for SME loan exposures.
• Whether the market continues to assign SABE a valuation premium to the European banking average.