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

Grupo Financiero Banorte SAB d / Equity Bottom-Up

<ul>
<li>Mexican banks and financials' solid share price performance makes the quest for value a tougher proposition</li>
<li>We stick with our positive recommendation on <a href="https://www.smartkarma.com/entities/gentera-sab-de-cv" target="_blank" data-smartkarma-citation="entities:27889:1" rel="noopener">Gentera SAB De CV (GENTERA* MM EQUITY)</a>, on the back of good fundamentals in 3Q19 and further potential for improving results in Peru as well as in Mexico</li>
<li>We believe that the <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MM)</a> results for 3Q19 are less impressive than at first look, boosted by trading gains, with the efficiency ratio deteriorating and slowing loan growth; we believe that the peak in returns is well discounted, and we would be inclined to take profits on further share price strength</li>
<li>
<a href="https://www.smartkarma.com/entities/banco-santander-mexico-sa-in" target="_blank" data-smartkarma-citation="entities:27672:1" rel="noopener">Banco Santander Mexico-B (BSMXB MM)</a> now has limited free float; post-tender offer by the parent, it is c 92% owned by the parent <a href="https://www.smartkarma.com/entities/banco-santander-sa" target="_blank" data-smartkarma-citation="entities:21296:1" rel="noopener">Banco Santander Sa (SAN SM)</a> and this lack of liquidity largely explains its discount to Banorte, in our view</li>
<li>Value - as measured by PBV versus ROE consensus forecasts - lies in second tier names; <a href="https://www.smartkarma.com/entities/banco-del-bajio-sa" target="_blank" data-smartkarma-citation="entities:28382:1" rel="noopener">Banco del Bajio SA (BBAJIOO MM)</a>  and, despite it challenges, <a href="https://www.smartkarma.com/entities/credito-real-s-a-b-de-c-v" target="_blank" data-smartkarma-citation="entities:28383:1" rel="noopener">Credito Real, S.A.B. De C.V. (CREAL* MM EQUITY)</a>, stand out</li>
<li>Risks to our thesis are better than expected execution at Banorte, and bigger than expected challenges for Gentera operations in Mexico and Peru</li>
</ul>


Mexican banks and financials' solid share price performance makes the quest for value a tougher proposition
We stick with our positive recommendation on Gentera SAB De CV (GENTERA* MM EQUITY), on the back of good fundamentals in 3Q19 and further potential for improving results in Peru as well as in Mexico
We believe that the Grupo Financiero Banorte-O (GFNORTEO MM) results for 3Q19 are less impressive than at first look, boosted by trading gains, with the efficiency ratio deteriorating and slowing loan growth; we believe that the peak in returns is well discounted, and we would be inclined to take profits on further share price strength

Banco Santander Mexico-B (BSMXB MM) now has limited free float; post-tender offer by the parent, it is c 92% owned by the parent Banco Santander Sa (SAN SM) and this lack of liquidity largely explains its discount to Banorte, in our view
Value - as measured by PBV versus ROE consensus forecasts - lies in second tier names; Banco del Bajio SA (BBAJIOO MM)  and, despite it challenges, Credito Real, S.A.B. De C.V. (CREAL* MM EQUITY), stand out
Risks to our thesis are better than expected execution at Banorte, and bigger than expected challenges for Gentera operations in Mexico and Peru


Mexican Banks - A More Demanding Quest for Value; Take Profits on Banorte

Cross Asset Strategy

<ul>
<li>Carlos Urzua, Mexico's finance minister, resigned yesterday citing many differences of opinion on public policy decisions and discrepancies in economic matters</li>
<li>President Andres Manuel Lopez Obrador (AMLO) stated that Urzua was not embracing the "transformation" by his administration</li>
<li>Urzua has been replaced by his deputy, the under-secretary of finance, Arturo Herrera who is seen as a technocratic (ex-World Bank), relatively safe pair of hands</li>
<li>The gorilla in the room remains Pemex, with its massive debt, and the possible construction of the "AMLO statement" refinery in Tabasco, which Urzua opposed</li>
<li>We fear that Herrera may be less able to re-direct AMLO away from his more populist policies, which points to the risk of an increasingly market-unfriendly Mexico going forward</li>
<li>At the start of the year, we thought that AMLO might be less bad than feared, and government bond prices suggested it was so; we now turn more cautious on Mexico</li>
<li>Although we retain our core positive recommendation in Mexican financials, <a href="https://www.smartkarma.com/entities/gentera-sab-de-cv" target="_blank" data-smartkarma-citation="entities:27889:1" rel="noopener">Gentera SAB De CV (GENTERA* MM EQUITY)</a> ,  we believe that <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MM)</a> in particular is at risk of further de-rating due to its government lending business</li>
</ul>


Carlos Urzua, Mexico's finance minister, resigned yesterday citing many differences of opinion on public policy decisions and discrepancies in economic matters
President Andres Manuel Lopez Obrador (AMLO) stated that Urzua was not embracing the "transformation" by his administration
Urzua has been replaced by his deputy, the under-secretary of finance, Arturo Herrera who is seen as a technocratic (ex-World Bank), relatively safe pair of hands
The gorilla in the room remains Pemex, with its massive debt, and the possible construction of the "AMLO statement" refinery in Tabasco, which Urzua opposed
We fear that Herrera may be less able to re-direct AMLO away from his more populist policies, which points to the risk of an increasingly market-unfriendly Mexico going forward
At the start of the year, we thought that AMLO might be less bad than feared, and government bond prices suggested it was so; we now turn more cautious on Mexico
Although we retain our core positive recommendation in Mexican financials, Gentera SAB De CV (GENTERA* MM EQUITY) ,  we believe that Grupo Financiero Banorte-O (GFNORTEO MM) in particular is at risk of further de-rating due to its government lending business


Mexican Finance Minister Resigns - Policy Risks Rising?

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<ul>
<li>
<a href="https://www.smartkarma.com/entities/21296" target="_blank" data-smartkarma-citation="entities:21296:1">Banco Santander Sa (SAN SM)</a> has announced that it will make an all share, voluntary offer for <a href="https://www.smartkarma.com/entities/27672" target="_blank" data-smartkarma-citation="entities:27672:1">Banco Santander Mexico-B (BSMXB MM)</a> minorities</li>
<li>The offer values the c 25% free float in SanMex at €2.56bn, which implies, at current exchange rates, a premium of 14%</li>
<li>Santander management's rationale for the offer "reflects its confidence in Mexico and its Mexican subsidiary as well as their long term growth potential" and it increases"its capacity to generate capital organically"; this latter point is helpful, given Santander parent's tight core capital ratio</li>
<li>It is also opportunistic by Santander management, in our view; the maximum up-take of the offer implies 3.5% dilution at the parent, and SanMex is cheap on PBV compared to its quoted LatAm sister banks and versus its own history</li>
<li> We see the offer as, at best, fair, but certainly not generous. Still, this offer is positive for investor sentiment towards the Mexican banks and Santander Mexico share price in the very near term; it is also a small positive for Santander parent, in our view</li>
</ul>



Banco Santander Sa (SAN SM) has announced that it will make an all share, voluntary offer for Banco Santander Mexico-B (BSMXB MM) minorities
The offer values the c 25% free float in SanMex at €2.56bn, which implies, at current exchange rates, a premium of 14%
Santander management's rationale for the offer "reflects its confidence in Mexico and its Mexican subsidiary as well as their long term growth potential" and it increases"its capacity to generate capital organically"; this latter point is helpful, given Santander parent's tight core capital ratio
It is also opportunistic by Santander management, in our view; the maximum up-take of the offer implies 3.5% dilution at the parent, and SanMex is cheap on PBV compared to its quoted LatAm sister banks and versus its own history
 We see the offer as, at best, fair, but certainly not generous. Still, this offer is positive for investor sentiment towards the Mexican banks and Santander Mexico share price in the very near term; it is also a small positive for Santander parent, in our view


Santander's All-Share Offer for SanMex; Scooping up Minorities for a Modest Premium

Thematic (Sector/Industry)

<ul>
<li>The Mexican president Andres Manuel Lopez Obrador (AMLO) announced at the annual Mexican bank association (ABM) convention on the 22nd March that there would be no cap or regulatory-enforced reduction in Mexican banking fee and commission charges</li>
<li>AMLO stated that he expects fees to decline going forward, as a result of increased competition between banks; in the ABM convention, it was also announced that banks will charge zero commissions on the planned platform for digital payments</li>
<li>This seems a better outcome on fees than the market expected - at least in the near term, as fees are still on the political agenda - and there was greater emphasis at the convention on how to achieve increased financial inclusion, via digital banking initiatives</li>
<li>Yet we still believe that bank fees could be a bone of contention over the medium term, and we show the FY 2018 ratio of fees to revenues and to assets for eight banks, in the charts below</li>
<li>The January 2019 Mexican banks data implies slower system loan growth going forward, yet credit quality remains healthy and credit spreads are holding steady</li>
<li>Despite the volatile global markets, in the short term banks like <a href="https://www.smartkarma.com/entities/24780" target="_blank" data-smartkarma-citation="entities:24780:1">Grupo Financiero Banorte-O (GFNORTEO MM)</a> could benefit from the "fee relief"; longer term, we would highlight <a href="https://www.smartkarma.com/entities/27889" target="_blank" data-smartkarma-citation="entities:27889:1">Gentera SAB De CV (GENTERA* MM EQUITY)</a> as an attractive fundamental pick in Mexican banks</li>
</ul>


The Mexican president Andres Manuel Lopez Obrador (AMLO) announced at the annual Mexican bank association (ABM) convention on the 22nd March that there would be no cap or regulatory-enforced reduction in Mexican banking fee and commission charges
AMLO stated that he expects fees to decline going forward, as a result of increased competition between banks; in the ABM convention, it was also announced that banks will charge zero commissions on the planned platform for digital payments
This seems a better outcome on fees than the market expected - at least in the near term, as fees are still on the political agenda - and there was greater emphasis at the convention on how to achieve increased financial inclusion, via digital banking initiatives
Yet we still believe that bank fees could be a bone of contention over the medium term, and we show the FY 2018 ratio of fees to revenues and to assets for eight banks, in the charts below
The January 2019 Mexican banks data implies slower system loan growth going forward, yet credit quality remains healthy and credit spreads are holding steady
Despite the volatile global markets, in the short term banks like Grupo Financiero Banorte-O (GFNORTEO MM) could benefit from the "fee relief"; longer term, we would highlight Gentera SAB De CV (GENTERA* MM EQUITY) as an attractive fundamental pick in Mexican banks


Mexican Banks - Near Term Relief on Fees from the ABM Convention; Thoughts on January's Bank Data

<ul class="">
<li>We take a contrarian bullish view on microfinance bank <a href="https://www.smartkarma.com/entities/27889" target="_blank" data-smartkarma-citation="entities:27889:1">Gentera SAB De CV (GENTERA* MM EQUITY)</a> , despite the AMLO headwinds, and a cautious stance on <a href="https://www.smartkarma.com/entities/24780" target="_blank" data-smartkarma-citation="entities:24780:1">Grupo Financiero Banorte-O (GFNORTEO MM)</a>
</li>
<li>AMLO push to increase financial inclusion in Mexico, focused on the low income and rural population, may add to bank sector costs at the margin without materially impacting revenues</li>
<li>Early fears of increased intervention in the bank sector – such as capping fees and commissions – appear to have abated. Interest-free loans for micro-entrepreneurs have hit sentiment on microfinance and consumer finance stocks, especially <a href="https://www.smartkarma.com/entities/27889" target="_blank" data-smartkarma-citation="entities:27889:1">Gentera SAB De CV (GENTERA* MM EQUITY)</a>; we believe, on a medium-term view, these concerns may be overdone</li>
<li>We would be cautious on the Mexican big cap banks, and especially <a href="https://www.smartkarma.com/entities/24780" target="_blank" data-smartkarma-citation="entities:24780:1">Grupo Financiero Banorte-O (GFNORTEO MM)</a> ; we see downside risk to consensus estimates from overly-positive GFI acquisition synergies, and potential pressure on local government loan rates over the medium term</li>
<li>We are neutral on <a href="https://www.smartkarma.com/entities/24776" target="_blank" data-smartkarma-citation="entities:24776:1">Grupo Financiero Inbursa-O (GFINBURO MM)</a>  and <a href="https://www.smartkarma.com/entities/27672" target="_blank" data-smartkarma-citation="entities:27672:1">Banco Santander Mexico-B (BSMXB MM)</a> , we like BBVA Bancomer long-dated unsecured bonds as an alternative to Mexican bank equity exposure</li>
</ul>


We take a contrarian bullish view on microfinance bank Gentera SAB De CV (GENTERA* MM EQUITY) , despite the AMLO headwinds, and a cautious stance on Grupo Financiero Banorte-O (GFNORTEO MM)

AMLO push to increase financial inclusion in Mexico, focused on the low income and rural population, may add to bank sector costs at the margin without materially impacting revenues
Early fears of increased intervention in the bank sector – such as capping fees and commissions – appear to have abated. Interest-free loans for micro-entrepreneurs have hit sentiment on microfinance and consumer finance stocks, especially Gentera SAB De CV (GENTERA* MM EQUITY); we believe, on a medium-term view, these concerns may be overdone
We would be cautious on the Mexican big cap banks, and especially Grupo Financiero Banorte-O (GFNORTEO MM) ; we see downside risk to consensus estimates from overly-positive GFI acquisition synergies, and potential pressure on local government loan rates over the medium term
We are neutral on Grupo Financiero Inbursa-O (GFINBURO MM)  and Banco Santander Mexico-B (BSMXB MM) , we like BBVA Bancomer long-dated unsecured bonds as an alternative to Mexican bank equity exposure


Mexican Banks AMLO Effect; Less Bad than Feared?

Mexico

Grupo Financiero Banorte S.A.B. de C.V. is a financial institution in Mexico. The Company offers banking services, premium banking, wholesale banking, leasing and factoring, warehousing, insurance, pensions and retirement savings.

Grupo Financiero Banorte SAB d (GFNORTEO MF)

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Grupo Financiero Banorte SAB d (GFNORTEO MF)

Mexican Banks - A More Demanding Quest for Value; Take Profits on Banorte

Mexican banks and financials' solid share price performance makes the quest for value a tougher proposition We stick with our positive...

Victor Galliano

Mexican Finance Minister Resigns - Policy Risks Rising?

Carlos Urzua, Mexico's finance minister, resigned yesterday citing many differences of opinion on public policy decisions and discrepancies in...

Victor Galliano

Mexican Banks - Near Term Relief on Fees from the ABM Convention; Thoughts on January's Bank Data

The Mexican president Andres Manuel Lopez Obrador (AMLO) announced at the annual Mexican bank association (ABM) convention on the 22nd March that...

Boost Research

Mexican Banks AMLO Effect; Less Bad than Feared?

We take a contrarian bullish view on microfinance bank Gentera SAB De CV (GENTERA* MM EQUITY) , despite the AMLO headwinds, and a cautious stance...

Boost Research

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Mexican Banks - A More Demanding Quest for Value; Take Profits on Banorte

Mexican banks and financials' solid share price performance makes the quest for value a tougher proposition We stick with our positive...

Victor Galliano

Mexican Finance Minister Resigns - Policy Risks Rising?

Carlos Urzua, Mexico's finance minister, resigned yesterday citing many differences of opinion on public policy decisions and discrepancies in...

Victor Galliano

Santander's All-Share Offer for SanMex; Scooping up Minorities for a Modest Premium

Banco Santander Sa (SAN SM) has announced that it will make an all share, voluntary offer for Banco Santander Mexico-B (BSMXB MM) minorities The...

Boost Research

Mexican Banks - Near Term Relief on Fees from the ABM Convention; Thoughts on January's Bank Data

The Mexican president Andres Manuel Lopez Obrador (AMLO) announced at the annual Mexican bank association (ABM) convention on the 22nd March that...

Boost Research

Mexican Banks AMLO Effect; Less Bad than Feared?

We take a contrarian bullish view on microfinance bank Gentera SAB De CV (GENTERA* MM EQUITY) , despite the AMLO headwinds, and a cautious stance...

Boost Research