Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Equity Bottom-Up

NU Holdings Ltd. of the Cayman Islands operates as a holding company. The Company, through its subsidiaries, provides loans and digital banking services, as well as issues, administrates, processes, and transfers payments to post-paid credit cards and equity investments in other entities. NU Holdings serves clients worldwide.

<ul>
<li>We take a more nuanced view on Nubank; the stock has corrected 16%+ from its high and, despite 28% YoY loan book growth, it has organically generated capital in 3Q24</li>
<li>Although Nubank is a digital bank success story, increased competition, especially from other fintechs, and a further deterioration in credit quality remain key business challenges going forward</li>
<li>Its recent share price correction and narrowing valuation gap leads us to recommend reducing short positions but, on balance, we remain sellers of Nubank; we stay positive on Bradesco</li>
</ul>


We take a more nuanced view on Nubank; the stock has corrected 16%+ from its high and, despite 28% YoY loan book growth, it has organically generated capital in 3Q24
Although Nubank is a digital bank success story, increased competition, especially from other fintechs, and a further deterioration in credit quality remain key business challenges going forward
Its recent share price correction and narrowing valuation gap leads us to recommend reducing short positions but, on balance, we remain sellers of Nubank; we stay positive on Bradesco


Nubank (NU US) – Gravity’s Pull and Key Business Factors

SoftBank Group Corp. provides telecommunication services. The Company also operates ADSL (Asymmetric Digital Subscriber Line) and fiber optic high-speed Internet connection, e-Commerce businesses, and Internet based advertising and auction businesses.

<ul>
<li>SoftBank group (SBG) relies mainly on Arm re-rating further for NAV growth, yet Arm’s valuation already discounts, in our view, much growth potential; SBG and Arm shares are highly correlated</li>
<li>JPY-USD FX has weakened recently, but the potential for BoJ monetary tightening could reverse this trend impacting SBG, given the high skew of USD assets relative to USD liabilities</li>
<li>The Vision Funds are hampered by few private company exits; SBG’s NAV discount remains high, but its dependence on Arm is a major risk; we turn negative on SBG</li>
</ul>


SoftBank group (SBG) relies mainly on Arm re-rating further for NAV growth, yet Arm’s valuation already discounts, in our view, much growth potential; SBG and Arm shares are highly correlated
JPY-USD FX has weakened recently, but the potential for BoJ monetary tightening could reverse this trend impacting SBG, given the high skew of USD assets relative to USD liabilities
The Vision Funds are hampered by few private company exits; SBG’s NAV discount remains high, but its dependence on Arm is a major risk; we turn negative on SBG


Softbank (9984 JP): The Importance of Arm Is More a Curse than a Blessing

Hana Financial Group Inc., in accordance with Financial Holding Companies Act, was established on December 1, 2005, through stock transfer with the former shareholders of its subsidiaries in order to provide management services and financing to associated companies.

<ul>
<li>Profitability ratio trends were mixed in 3Q24, with most of the South Korean banks seeing improved post-provision returns to September-end, helped by generally lower cost of risk trends</li>
<li>Hana Financial remains our big-cap pick for its attractive valuations, PEG and equity risk premia; there is potential for its inclusion in a planned Value-Up index rebalancing scheduled for December</li>
<li>Among the smaller caps, Woori stands out in terms of valuation, PEG ratio, credit quality and it has registered improving pre- provision profitability and efficiency ratio</li>
</ul>


Profitability ratio trends were mixed in 3Q24, with most of the South Korean banks seeing improved post-provision returns to September-end, helped by generally lower cost of risk trends
Hana Financial remains our big-cap pick for its attractive valuations, PEG and equity risk premia; there is potential for its inclusion in a planned Value-Up index rebalancing scheduled for December
Among the smaller caps, Woori stands out in terms of valuation, PEG ratio, credit quality and it has registered improving pre- provision profitability and efficiency ratio


South Korean Banks; Hana Financial (086790 KS) And Woori (316140 KS) Remain Our Key Positive Picks

Bank Negara Indonesia Persero / Equity Bottom-Up

PT Bank Negara Indonesia (Persero) Tbk is a state-owned bank that conducts commercial and consumer banking services.

<ul>
<li>Negara’s attractive valuations, its low PEG ratio, its improving returns and efficiency ratio stand out; pre- and post-provision returns edged higher, combined with high NPL coverage and healthy CET1 ratio</li>
<li>We remain positive on Mandiri for its attractive PE multiples, its premium returns, and its robust credit quality metrics; Mandiri has the second-best efficiency ratio after mega-cap Bank Central Asia</li>
<li>Rakyat’s high structural cost of risk continues to weigh on its pre- and post-provision returns, with the latter being eroded further to 3Q24</li>
</ul>


Negara’s attractive valuations, its low PEG ratio, its improving returns and efficiency ratio stand out; pre- and post-provision returns edged higher, combined with high NPL coverage and healthy CET1 ratio
We remain positive on Mandiri for its attractive PE multiples, its premium returns, and its robust credit quality metrics; Mandiri has the second-best efficiency ratio after mega-cap Bank Central Asia
Rakyat’s high structural cost of risk continues to weigh on its pre- and post-provision returns, with the latter being eroded further to 3Q24


Indonesian Banks Screener; Stick with Bank Negara (BBNI IJ) And Bank Mandiri (BMRI IJ)

Banco Bradesco S.A. attracts deposits and offers commercial banking services. The Bank offers business loans, personal credit, mortgages, lease financing, mutual funds, securities brokerage, and Internet banking services.  Bradesco operates in Brazil and Argentina, the United States, the Cayman Islands, and the United Kingdom.  Bradesco offers credit cards, insurance, and pension funds.

<ul>
<li>Bradesco’s quarterly results disappointed the market due to soft interest margins, despite the clear indications of Bradesco’s improving returns and better credit quality metrics</li>
<li>NuBank is a digital bank success story, but it has credit quality challenges and also potential capital constraints, due to its fast loan growth</li>
<li>We remain neutral on Itaú and Banco do Brasil; Banco do Brasil seems attractive on valuations, but it is more exposed to political risk; buy Bradesco, sell Nubank</li>
</ul>


Bradesco’s quarterly results disappointed the market due to soft interest margins, despite the clear indications of Bradesco’s improving returns and better credit quality metrics
NuBank is a digital bank success story, but it has credit quality challenges and also potential capital constraints, due to its fast loan growth
We remain neutral on Itaú and Banco do Brasil; Banco do Brasil seems attractive on valuations, but it is more exposed to political risk; buy Bradesco, sell Nubank


Big-Cap Brazilian Commercial Banks; Bradesco Stays Our High Conviction Buy, Nubank Remains a Sell