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>Among EM banks, our top picks are Sberbank in Russia, Banco do Brasil and HDFC Bank in India; we are negative on recent IPO Nubank due to inflated market expectations</li>
<li>Our top picks for 2022 are BBVA and Banco BPM for Southern Europe banks. In Exchanges, we are positive on B3 of Brazil and SGX</li>
<li>In payments, we like Mastercard and Pagseguro, but we are negative on Paytm; we see BTG Pactual as an attractive pick and winner in the digital wealth managers and brokers</li>
</ul>


Among EM banks, our top picks are Sberbank in Russia, Banco do Brasil and HDFC Bank in India; we are negative on recent IPO Nubank due to inflated market expectations
Our top picks for 2022 are BBVA and Banco BPM for Southern Europe banks. In Exchanges, we are positive on B3 of Brazil and SGX
In payments, we like Mastercard and Pagseguro, but we are negative on Paytm; we see BTG Pactual as an attractive pick and winner in the digital wealth managers and brokers


2022 High Conviction Ideas in FinTech & Financials

Event-Driven

<ul>
<li>CASA’s enhanced offer for <a href="https://www.smartkarma.com/entities/credito-valtellinese-spa" target="_blank" data-smartkarma-citation="entities:21175:1" rel="noopener">Credito Valtellinese SpA (CVAL IM)</a> confirms the appetite for M&amp;A in Southern Europe, and Italy in particular</li>
<li>We expect Italian M&amp;A to be largely intra-country, as the key factors driving consolidation is the need for greater domestic scale given the lower for longer interest rates, especially in Europe, as well as the march of digital banking globally</li>
<li>After <a href="https://www.smartkarma.com/entities/intesa-sanpaolo-spa" target="_blank" data-smartkarma-citation="entities:21200:1" rel="noopener">Intesa Sanpaolo (ISP IM)</a>-UBI, and now potentially the conclusion of CASA Italia-CreVal, the focus is on the future of <a href="https://www.smartkarma.com/entities/banca-monte-dei-paschi-di-siena" target="_blank" data-smartkarma-citation="entities:21162:1" rel="noopener">Banca Monte dei Paschi di Siena (BMPS IM)</a> </li>
<li>A combination between <a href="https://www.smartkarma.com/entities/banco-bpm-spa" target="_blank" data-smartkarma-citation="entities:28121:1" rel="noopener">Banco BPM SpA (BAMI IM)</a> and <a href="https://www.smartkarma.com/entities/bper-banca-s-p-a" target="_blank" data-smartkarma-citation="entities:21165:1" rel="noopener">BPER Banca S.p.A (BPE IM)</a> now seems less likely; this implies that Banco BPM is a potential contender, once again, to combine with BMPS; the latter has largely de-risked its balance sheet, even if its core capital ratio is low</li>
<li>We would see a BPM-BMPS union as a major positive catalyst for a <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a>  re-rating; even if Unicredit were to acquire BMPS, we believe that, at current valuations, a lot of the risks are discounted</li>
<li>Risks to our positive Unicredit view include Unicredit’s acquisition of BMPS on unfavourable terms, as well as worse than expected organic performance of revenue growth, given the challenging interest rate environment</li>
</ul>


CASA’s enhanced offer for Credito Valtellinese SpA (CVAL IM) confirms the appetite for M&amp;A in Southern Europe, and Italy in particular
We expect Italian M&amp;A to be largely intra-country, as the key factors driving consolidation is the need for greater domestic scale given the lower for longer interest rates, especially in Europe, as well as the march of digital banking globally
After Intesa Sanpaolo (ISP IM)-UBI, and now potentially the conclusion of CASA Italia-CreVal, the focus is on the future of Banca Monte dei Paschi di Siena (BMPS IM) 
A combination between Banco BPM SpA (BAMI IM) and BPER Banca S.p.A (BPE IM) now seems less likely; this implies that Banco BPM is a potential contender, once again, to combine with BMPS; the latter has largely de-risked its balance sheet, even if its core capital ratio is low
We would see a BPM-BMPS union as a major positive catalyst for a UniCredit SpA (UCG IM)  re-rating; even if Unicredit were to acquire BMPS, we believe that, at current valuations, a lot of the risks are discounted
Risks to our positive Unicredit view include Unicredit’s acquisition of BMPS on unfavourable terms, as well as worse than expected organic performance of revenue growth, given the challenging interest rate environment


Southern Europe Banks: Focus on Italian Banks M&A

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

<p>Major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) continue to hold above critical support levels and market dynamics remain largely positive. Until this changes, we believe global equities are headed higher in the coming weeks and months. Additionally, we are reiterating our overweight recommendations on small-caps and value as we believe outperformance from these areas is likely to continue.</p>

Major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) continue to hold above critical support levels and market dynamics remain largely positive. Until this changes, we believe global equities are headed higher in the coming weeks and months. Additionally, we are reiterating our overweight recommendations on small-caps and value as we believe outperformance from these areas is likely to continue.

Global Equity Strategy: Small-Caps and Value Stocks Remain in Focus

<ul>
<li>The rotation into value stocks has lifted bank valuations across the board, especially in developed markets</li>
<li>Even if we could see a pause in the near term, we believe that the rotation has further to run</li>
<li>We screen our universe of European banks for attractive valuations and resilient balance sheets, especially on credit quality and capital, post 4Q20 results</li>
<li>We highlight <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc-a723bd63-0890-486f-aaa0-3bb9ad2b95ce" target="_blank" data-smartkarma-citation="entities:21976:1" rel="noopener">HSBC Holdings (HSBA LN)</a>, <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a> and <a href="https://www.smartkarma.com/entities/caixabank-sa" target="_blank" data-smartkarma-citation="entities:21255:1" rel="noopener">CaixaBank SA (CABK SM)</a>; we turn positive on <a href="https://www.smartkarma.com/entities/banco-bpm-spa" target="_blank" data-smartkarma-citation="entities:28121:1" rel="noopener">Banco BPM SpA (BAMI IM)</a>, where we had previously been concerned about potentially problematic M&amp;A</li>
<li>In Northern Europe, <a href="https://www.smartkarma.com/entities/jyske-bank-a-s" target="_blank" data-smartkarma-citation="entities:22404:1" rel="noopener">Jyske Bank A/S (JYSK DC)</a> in Denmark screens well amongst the smaller caps, on both valuation and balance sheet strength</li>
<li>Risks to our view include a worse than expected macro-economic recovery with slower growth impacting credit quality, demand for credit and lower for longer interest rates and spreads</li>
</ul>


The rotation into value stocks has lifted bank valuations across the board, especially in developed markets
Even if we could see a pause in the near term, we believe that the rotation has further to run
We screen our universe of European banks for attractive valuations and resilient balance sheets, especially on credit quality and capital, post 4Q20 results
We highlight HSBC Holdings (HSBA LN), UniCredit SpA (UCG IM) and CaixaBank SA (CABK SM); we turn positive on Banco BPM SpA (BAMI IM), where we had previously been concerned about potentially problematic M&amp;A
In Northern Europe, Jyske Bank A/S (JYSK DC) in Denmark screens well amongst the smaller caps, on both valuation and balance sheet strength
Risks to our view include a worse than expected macro-economic recovery with slower growth impacting credit quality, demand for credit and lower for longer interest rates and spreads


European Bank Screens 4Q20 – Our Picks in the Rotation to Value

Thematic (Sector/Industry)

<ul>
<li>The elephant in the Italian bank M&amp;A room is government controlled <a href="https://www.smartkarma.com/entities/banca-monte-dei-paschi-di-siena" target="_blank" data-smartkarma-citation="entities:21162:1" rel="noopener">Banca Monte dei Paschi di Siena (BMPS IM)</a>, which needs to find a merger partner in 2021; will that be <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a>, post-Mustier, and who could be its new CEO?</li>
<li>We believe that, in the event of a Unicredit acquisition of BMPS, it would require meaningful “government sponsorship”; in effect, for BMPS, pre-deal, to dispose of the bulk of its NPLs – which is underway – and for a capital infusion that renders the deal to be capital neutral for Unicredit</li>
<li>The other big M&amp;A unknowns relate to the listed mid-cap banks especially <a href="https://www.smartkarma.com/entities/banco-bpm-spa" target="_blank" data-smartkarma-citation="entities:28121:1" rel="noopener">Banco BPM SpA (BAMI IM)</a> and <a href="https://www.smartkarma.com/entities/bper-banca-s-p-a" target="_blank" data-smartkarma-citation="entities:21165:1" rel="noopener">BPER Banca S.p.A (BPE IM)</a>; these banks need to cut costs and branch networks, which can be more readily incorporated into a merger restructuring plan</li>
<li>We believe that the risk of a BMPS acquisition is largely priced into Unicredit shares, and we expect its wide PBV discount to premium valued <a href="https://www.smartkarma.com/entities/intesa-sanpaolo-spa" target="_blank" data-smartkarma-citation="entities:21200:1" rel="noopener">Intesa Sanpaolo (ISP IM)</a> to narrow;  our recommendation is to go long Unicredit, short Intesa</li>
<li>We think <a href="https://www.smartkarma.com/entities/credit-agricole-sa" target="_blank" data-smartkarma-citation="entities:21373:1" rel="noopener">Credit Agricole Sa (ACA FP)</a> is unlikely to sweeten the <a href="https://www.smartkarma.com/entities/credito-valtellinese-spa" target="_blank" data-smartkarma-citation="entities:21175:1" rel="noopener">Credito Valtellinese Sc (CVAL IM)</a> cash offer of €10.50 per share, and with CreVal shares trading at a 7% offer premium, there could be downside risk</li>
<li>We remain negative on Banco BPM shares, as, in the wake of the CredAg offer for CreVal, we believe that BPM’s options are limited, and that it may be the potential “back-stop” merger candidate with BMPS, in the event of no deal with Unicredit; the alternative could be a BPM-BPER merger, and we turn constructive on BPER, after its protracted underperformance</li>
<li>Risks to our view include Unicredit acquiring BMPS on worse than expected terms, with Intesa on the other hand delivering better than expected synergies and savings from the UBI integration; other risks also include a bidder emerging for BPM, as well as no merger or bid for BPER</li>
</ul>


The elephant in the Italian bank M&amp;A room is government controlled Banca Monte dei Paschi di Siena (BMPS IM), which needs to find a merger partner in 2021; will that be UniCredit SpA (UCG IM), post-Mustier, and who could be its new CEO?
We believe that, in the event of a Unicredit acquisition of BMPS, it would require meaningful “government sponsorship”; in effect, for BMPS, pre-deal, to dispose of the bulk of its NPLs – which is underway – and for a capital infusion that renders the deal to be capital neutral for Unicredit
The other big M&amp;A unknowns relate to the listed mid-cap banks especially Banco BPM SpA (BAMI IM) and BPER Banca S.p.A (BPE IM); these banks need to cut costs and branch networks, which can be more readily incorporated into a merger restructuring plan
We believe that the risk of a BMPS acquisition is largely priced into Unicredit shares, and we expect its wide PBV discount to premium valued Intesa Sanpaolo (ISP IM) to narrow;  our recommendation is to go long Unicredit, short Intesa
We think Credit Agricole Sa (ACA FP) is unlikely to sweeten the Credito Valtellinese Sc (CVAL IM) cash offer of €10.50 per share, and with CreVal shares trading at a 7% offer premium, there could be downside risk
We remain negative on Banco BPM shares, as, in the wake of the CredAg offer for CreVal, we believe that BPM’s options are limited, and that it may be the potential “back-stop” merger candidate with BMPS, in the event of no deal with Unicredit; the alternative could be a BPM-BPER merger, and we turn constructive on BPER, after its protracted underperformance
Risks to our view include Unicredit acquiring BMPS on worse than expected terms, with Intesa on the other hand delivering better than expected synergies and savings from the UBI integration; other risks also include a bidder emerging for BPM, as well as no merger or bid for BPER


Italian Banks M&A Scenarios: The Italian Job in 2021

Italy

Banco BPM S.p.A. operates as a bank. The Bank offers private and corporate banking, loans, e-banking, investment, and other related services. Banco BPM serves customers in Italy.

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Banco BPM SpA (BAMI IM)

2022 High Conviction Ideas in FinTech & Financials

Our 2022 high conviction ideas include buys on Sberbank, Banco do Brasil and HDFC Bank, as well as BBVA, Banco BPM, B3, SGX, Mastercard and...

Victor Galliano

Southern Europe Banks: Focus on Italian Banks M&A

The prospect of Italian bank sector M&A in Italy is overly penalizing Unicredit shares for the risk of a BMPS deal. With the BPM-BPER union called...

Victor Galliano

Global Equity Strategy: Small-Caps and Value Stocks Remain in Focus

We are reiterating our overweight recommendations on small-caps and value as we believe outperformance from these areas is likely to continue.

Vermilion Research

European Bank Screens 4Q20 – Our Picks in the Rotation to Value

The rotation to value benefits European banks, and there is further to go. 4Q20 results show resilient balance sheets; we focus on HSBC, Unicredit,...

Victor Galliano

Italian Banks M&A Scenarios: The Italian Job in 2021

Italian banks M&A is gathering and we take a largely contrarian stance on stocks; pairs trade long Unicredit, short Intesa; positive on BPER,...

Victor Galliano

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