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

<ul>
<li>
<a href="https://www.smartkarma.com/entities/27954" target="_blank" data-smartkarma-citation="entities:27954:1">MercadoLibre Inc (MELI US)</a> is the leading e-commerce platform in Latin America, present in 18 countries in the region, with Gross Merchandise Volume (GMV) of USD12.5bn in 2018</li>
<li>We estimate that in its fintech operations, the vast majority of the value lies in the MercadoPago payments business, with its growing presence in Brazil, versus the more recently established credit business MercadoCredito</li>
<li>We estimate that our valuation of MercadoPago and MercadoCredito is in a range of USD3.6-6.8bn, equivalent to a range of 15%-28% of the market cap</li>
<li>The first challenges we see for MELI going forward is that 26% of the group’s 2018 revenues were derived from Argentina; the economy is in deep recession, and the upcoming Presidential elections in October could result in a populist and market-unfriendly outcome</li>
<li>In addition, the intensifying market share contest in the Brazilian payments industry, with incumbents increasing price competition, is likely to hit returns in MercadoPago Brasil</li>
<li>We recognize the solidity and growth potential of the MELI e-commerce operations throughout Latin America, and the payment entity's contribution to the overall group valuation; however, we are cautious on MELI shares due to valuation, and we expect the shares to de-rate going forward, especially as the negative catalysts of increased competition in Brazil payments and Argentina macro and political concerns make an impact</li>
</ul>



MercadoLibre Inc (MELI US) is the leading e-commerce platform in Latin America, present in 18 countries in the region, with Gross Merchandise Volume (GMV) of USD12.5bn in 2018
We estimate that in its fintech operations, the vast majority of the value lies in the MercadoPago payments business, with its growing presence in Brazil, versus the more recently established credit business MercadoCredito
We estimate that our valuation of MercadoPago and MercadoCredito is in a range of USD3.6-6.8bn, equivalent to a range of 15%-28% of the market cap
The first challenges we see for MELI going forward is that 26% of the group’s 2018 revenues were derived from Argentina; the economy is in deep recession, and the upcoming Presidential elections in October could result in a populist and market-unfriendly outcome
In addition, the intensifying market share contest in the Brazilian payments industry, with incumbents increasing price competition, is likely to hit returns in MercadoPago Brasil
We recognize the solidity and growth potential of the MELI e-commerce operations throughout Latin America, and the payment entity's contribution to the overall group valuation; however, we are cautious on MELI shares due to valuation, and we expect the shares to de-rate going forward, especially as the negative catalysts of increased competition in Brazil payments and Argentina macro and political concerns make an impact


MercadoLibre: Competitive Headwinds in Brazil Payments, Macro and Political Concerns in Argentina

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Market activity, both bonds and stocks, has been all about realigning expectations. Wednesday’s Fed announcement was more dovish than expected, and the market is now pricing in roughly 25bps of cuts by the end of 2019. Stocks reacted positively on Thursday, but then reversed (and then some) on Friday as global growth concerns became a little more serious. We continue to maintain our positive outlook. In today’s report we recap our bullish investment thesis and highlight attractive Groups and stocks within Consumer Staples, Materials, and Services.

Market activity, both bonds and stocks, has been all about realigning expectations. Wednesday’s Fed announcement was more dovish than expected, and the market is now pricing in roughly 25bps of cuts by the end of 2019. Stocks reacted positively on Thursday, but then reversed (and then some) on Friday as global growth concerns became a little more serious. We continue to maintain our positive outlook. In today’s report we recap our bullish investment thesis and highlight attractive Groups and stocks within Consumer Staples, Materials, and Services.

U.S. Equity Strategy: Bullish Outlook Intact

Accelerating Tomorrow’s Independent Research

Boost Research

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Thematic (Sector/Industry)

<ul class="">
<li>The non-cash payments market continues to grow at a double-digit rate in Brazil, driven primarily by growing usage of credit and debit cards</li>
<li>De-regulation and new entrants have brought challenges for the incumbents, especially for the largest player <a href="https://www.smartkarma.com/entities/24750" target="_blank">Cielo SA (CIEL3 BZ)</a>, with the challengers taking market share, squeezing margins and promoting better service for SME merchants in particular</li>
<li>Competitive pressures continue in the Brazil payments market, reflected in the declining merchant discount rate (MDR), lower rental rates and sale prices for POS terminals, as well as pressure on the commissions for early payment of merchant receivables; the near-term prospects for Cielo remain challenging in our view</li>
<li>Due to the ongoing headwinds, we expect Cielo to show negative earnings growth to 2021; management has announced that Cielo will defend its market share against the challengers; we see further downside risk to consensus earnings and the real risk of a greater than consensus 2019 DPS cut</li>
<li>
<a href="https://www.smartkarma.com/entities/27564" target="_blank">StoneCo Ltd (STNE US)</a>and <a href="https://www.smartkarma.com/entities/27939" target="_blank">Pagseguro Digital Ltd (PAGS US)</a> are two of the payment challengers in this de-regulated market, growing faster than the Brazilian non-cash transactions market and taking incumbents' market share; we see StoneCo to be the preferred entity to PagSeguro, based on StoneCo’s higher revenue yielding SME segment of focus and on its more attractive PEG ratio valuation</li>
</ul>


The non-cash payments market continues to grow at a double-digit rate in Brazil, driven primarily by growing usage of credit and debit cards
De-regulation and new entrants have brought challenges for the incumbents, especially for the largest player Cielo SA (CIEL3 BZ), with the challengers taking market share, squeezing margins and promoting better service for SME merchants in particular
Competitive pressures continue in the Brazil payments market, reflected in the declining merchant discount rate (MDR), lower rental rates and sale prices for POS terminals, as well as pressure on the commissions for early payment of merchant receivables; the near-term prospects for Cielo remain challenging in our view
Due to the ongoing headwinds, we expect Cielo to show negative earnings growth to 2021; management has announced that Cielo will defend its market share against the challengers; we see further downside risk to consensus earnings and the real risk of a greater than consensus 2019 DPS cut

StoneCo Ltd (STNE US)and Pagseguro Digital Ltd (PAGS US) are two of the payment challengers in this de-regulated market, growing faster than the Brazilian non-cash transactions market and taking incumbents' market share; we see StoneCo to be the preferred entity to PagSeguro, based on StoneCo’s higher revenue yielding SME segment of focus and on its more attractive PEG ratio valuation


Brazilian Payments Report: Cielo on the Defensive Against Disruptive Challengers

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<a href="https://www.smartkarma.com/entities/15529" target="_blank" data-smartkarma-citation="entities:15529:1">Mastercard Inc Class A (MA US)</a> has a made a <a href="https://earthport.communisis.website/wp-content/uploads/2019/01/Final-Rule-2.7-Announcement-216406-4-1010-v0.4.pdf" target="_blank">£233mn Offer</a> to take over cross-border payments firm <a href="https://www.smartkarma.com/entities/23493" target="_blank" data-smartkarma-citation="entities:23493:1">Earthport plc (EPO LN)</a>, trumping <a href="https://www.smartkarma.com/entities/8707" target="_blank" data-smartkarma-citation="entities:8707:1">Visa Inc Class A Shares (V US)</a>'s <a href="https://www.earthport.com/wp-content/uploads/2018/12/Project-Edge-Final-Rule-2.7-Announcement-27-December.pdf" target="_blank">offer</a> late last month by 10%.
EPO's board has recommended Mastercard's Offer to its shareholders. Visa's Scheme meeting, initially scheduled for the 21 February, has been adjourned.
Mastercard's £0.33/share offer compares to Visa's <a href="https://www.earthport.com/wp-content/uploads/2018/12/Project-Edge-Final-Rule-2.7-Announcement-27-December.pdf" target="_blank">£0.30/share tilt</a>, and represents a 340% premium over EPO's undisturbed price of £0.075/share.
The Offer is conditional on 75% of EPO's shareholders accepting with 13.08% of shares outstanding in the bag.  Mastercard will move to cancel the shares on AIM if it achieves 75%.
EPO's shares increased to £0.282 following Visa's offer, but currently trades at ~£0.37, 12% above the latest offer, suggesting a higher bid is likely, or at least expected. 
Cross-border payments are an estimated US$30tn business and both credit card giants are registering higher annual growth and billions of dollars in fees. EPO is a drop in the ocean for Mastercard (US$205bn market cap) and Visa (US$297bn).
Arguably this deal could run significantly higher - the question is how desperate these two players are towards buying now as opposed to building.
And it's not just small transactions in the payment industry getting attention, after <a href="https://www.smartkarma.com/entities/4980" target="_blank" data-smartkarma-citation="entities:4980:1">Fiserv Inc (FISV US)</a>'s announcement earlier this month it would merge with <a href="https://www.smartkarma.com/entities/26501" target="_blank" data-smartkarma-citation="entities:26501:1">First Data Corp (FDC US)</a> in a US$22bn transaction, and <a href="https://www.smartkarma.com/entities/4747" target="_blank" data-smartkarma-citation="entities:4747:1">Paypal Holdings (PYPL US)</a>'s US$2.2bn acquisition of Sweden's iZettle last year.

Mastercard Inc Class A (MA US) has a made a £233mn Offer to take over cross-border payments firm Earthport plc (EPO LN), trumping Visa Inc Class A Shares (V US)'s offer late last month by 10%.
EPO's board has recommended Mastercard's Offer to its shareholders. Visa's Scheme meeting, initially scheduled for the 21 February, has been adjourned.
Mastercard's £0.33/share offer compares to Visa's £0.30/share tilt, and represents a 340% premium over EPO's undisturbed price of £0.075/share.
The Offer is conditional on 75% of EPO's shareholders accepting with 13.08% of shares outstanding in the bag.  Mastercard will move to cancel the shares on AIM if it achieves 75%.
EPO's shares increased to £0.282 following Visa's offer, but currently trades at ~£0.37, 12% above the latest offer, suggesting a higher bid is likely, or at least expected. 
Cross-border payments are an estimated US$30tn business and both credit card giants are registering higher annual growth and billions of dollars in fees. EPO is a drop in the ocean for Mastercard (US$205bn market cap) and Visa (US$297bn).
Arguably this deal could run significantly higher - the question is how desperate these two players are towards buying now as opposed to building.
And it's not just small transactions in the payment industry getting attention, after Fiserv Inc (FISV US)'s announcement earlier this month it would merge with First Data Corp (FDC US) in a US$22bn transaction, and Paypal Holdings (PYPL US)'s US$2.2bn acquisition of Sweden's iZettle last year.

Earthport the Winner as Mastercard/Visa Jostle For Position

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Afterpay Touch announced an AUD 108 million institutional placement. In this insight, we have a quick look at the deal in the following topics:<ul>
<li>Placement details</li>
<li>Company background</li>
<li>Recent earnings</li>
<li>Our thoughts on valuation</li>
<li>Scores in our ECM Framework</li>
</ul>

Afterpay Touch announced an AUD 108 million institutional placement. In this insight, we have a quick look at the deal in the following topics:
Placement details
Company background
Recent earnings
Our thoughts on valuation
Scores in our ECM Framework


Afterpay Touch Placement: Strong Momentum but Valuation Is Rich

United States

PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants. The Company offers online payment solutions. PayPal Holdings serves customers worldwide.

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Paypal Holdings (PYPL US)

MercadoLibre: Competitive Headwinds in Brazil Payments, Macro and Political Concerns in Argentina

MercadoLibre Inc (MELI US) is the leading e-commerce platform in Latin America, present in 18 countries in the region, with Gross Merchandise...

Victor Galliano

U.S. Equity Strategy: Bullish Outlook Intact

Market activity, both bonds and stocks, has been all about realigning expectations. Wednesday’s Fed announcement was more dovish than expected, and...

Vermilion Research

Brazilian Payments Report: Cielo on the Defensive Against Disruptive Challengers

The non-cash payments market continues to grow at a double-digit rate in Brazil, driven primarily by growing usage of credit and debit...

Boost Research

Earthport the Winner as Mastercard/Visa Jostle For Position

Mastercard Inc Class A (MA US) has a made a £233mn Offer to take over cross-border payments firm Earthport plc (EPO LN), trumping Visa Inc Class A...

David Blennerhassett

Afterpay Touch Placement: Strong Momentum but Valuation Is Rich

Afterpay Touch announced an AUD 108 million institutional placement. In this insight, we have a quick look at the deal in the following...

Ke Yan, CFA, FRM

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