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>We explore Citibank’s upcoming Banamex disposal, which appears to have become a one horse race and question whether an IPO is completely off the cards</li>
<li>Bank sector data trends to December remain robust, but headwinds are building; rising funding costs threaten credit spreads and worsening cost of credit trends, both set to erode 2023 returns</li>
<li>BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through parent BBVA shares; we remain cautious on Banorte, due to the growing risks to returns and valuation</li>
</ul>


We explore Citibank’s upcoming Banamex disposal, which appears to have become a one horse race and question whether an IPO is completely off the cards
Bank sector data trends to December remain robust, but headwinds are building; rising funding costs threaten credit spreads and worsening cost of credit trends, both set to erode 2023 returns
BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through parent BBVA shares; we remain cautious on Banorte, due to the growing risks to returns and valuation


Banamex Update & Mexican Banks’ December Data; Risks of Credit Spread Erosion & Rising Credit Costs

<ul>
<li>Banorte’s solid 4Q22, and the prospect of a healthy dividend payout, have so far trumped concerns of an earnings downturn from credit spread erosion, higher opex and cost of risk</li>
<li>Bank sector data trends to November accentuate the return headwinds that we see emerging; further tightening credit spreads and a rising cost of credit, credit cards a likely leading indicator</li>
<li>BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through BBVA equity; we continue to be cautious on Banorte, due to the growing risks to returns</li>
</ul>


Banorte’s solid 4Q22, and the prospect of a healthy dividend payout, have so far trumped concerns of an earnings downturn from credit spread erosion, higher opex and cost of risk
Bank sector data trends to November accentuate the return headwinds that we see emerging; further tightening credit spreads and a rising cost of credit, credit cards a likely leading indicator
BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through BBVA equity; we continue to be cautious on Banorte, due to the growing risks to returns


Banorte 4Q22 & Mexican Banks’ November Data – Rising Risk of Credit Spread Erosion and NPL Worsening

<ul>
<li>We analyse key trends to October 2022 for Banorte and Banco del Bajio, two of the top three ROE generating banks in Mexico which also trade on premium PBV ratios</li>
<li>For both, the challenges are funding costs that rise faster than loan yields, crimping credit spreads, as well as the indications that cost of risk may have bottomed out</li>
<li>Although the operating expenses ratio is well controlled so far, it seems unlikely that it can improve much more; these data trends add weight to our cautious view on Banorte</li>
</ul>


We analyse key trends to October 2022 for Banorte and Banco del Bajio, two of the top three ROE generating banks in Mexico which also trade on premium PBV ratios
For both, the challenges are funding costs that rise faster than loan yields, crimping credit spreads, as well as the indications that cost of risk may have bottomed out
Although the operating expenses ratio is well controlled so far, it seems unlikely that it can improve much more; these data trends add weight to our cautious view on Banorte


Banorte and BanBajio - October Data Trends, a First Look at 4Q 2022; Returns Pressure Building?

<ul>
<li>Bank sector trends to October continue to be sound, but return headwinds are emerging; further tightening credit spreads and initial signs of worsening in consumer credit quality</li>
<li>To October, funding costs are rising faster than loan yields, crimping credit spreads, and the rising credit card cost of risk indicates a worsening outlook for consumer credit quality</li>
<li>BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through BBVA equity; we continue to be cautious on Banorte, and we recommend taking profits on BanBajio</li>
</ul>


Bank sector trends to October continue to be sound, but return headwinds are emerging; further tightening credit spreads and initial signs of worsening in consumer credit quality
To October, funding costs are rising faster than loan yields, crimping credit spreads, and the rising credit card cost of risk indicates a worsening outlook for consumer credit quality
BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through BBVA equity; we continue to be cautious on Banorte, and we recommend taking profits on BanBajio


Mexican Banks’ October Data and Trends – Credit Spread Erosion a Bigger Threat than Credit Quality?

<ul>
<li>Banorte pulls out of the Banamex bidding, leaving two Mexican groups as potential bidders; this now removes the risk of a capital raise for Banorte and a potential dividend cut</li>
<li>Banorte delivered a strong set of 3Q22 results, yet we believe that its returns could be close to peaking and that we expect a profitability downturn in 2023</li>
<li>The withdrawal from the Banamex bidding is shareholder positive, but we see that current valuations do not reflect 2023 risks, especially from higher cost of risk and squeezed credit spreads</li>
</ul>


Banorte pulls out of the Banamex bidding, leaving two Mexican groups as potential bidders; this now removes the risk of a capital raise for Banorte and a potential dividend cut
Banorte delivered a strong set of 3Q22 results, yet we believe that its returns could be close to peaking and that we expect a profitability downturn in 2023
The withdrawal from the Banamex bidding is shareholder positive, but we see that current valuations do not reflect 2023 risks, especially from higher cost of risk and squeezed credit spreads


Banorte (GFNORTEO MX) – No Longer Bidding for Banamex, but Tougher Fundamental Hurdles into 2023

Mexico

Banco del Bajio S.A. provides a full range of commercial banking services. The Bank offers mortgages loans, saving, investment option, pension advice, and electronic billing services. Banco del Bajio operates in Mexico.

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Banco del Bajio SA (BBAJIOO MM)

Banamex Update & Mexican Banks’ December Data; Risks of Credit Spread Erosion & Rising Credit Costs

The Banamex sale is a one horse race, Mexican bank PBVs are high; is an IPO totally off the cards? December data was solid, but higher funding...

Victor Galliano

Banorte 4Q22 & Mexican Banks’ November Data – Rising Risk of Credit Spread Erosion and NPL Worsening

The market reacted positively to Banorte’s 4Q22 results, yet from the sector data as well as Banorte's report, we see 2023 challenges from rising...

Victor Galliano

Banorte and BanBajio - October Data Trends, a First Look at 4Q 2022; Returns Pressure Building?

Especially for Banorte the hurdles are fast rising funding costs crimping credit spreads, and indications that cost of risk may have bottomed out;...

Victor Galliano

Mexican Banks’ October Data and Trends – Credit Spread Erosion a Bigger Threat than Credit Quality?

Mexican bank October data show more credit spread erosion and signs of poorer credit quality; we advise BanBajio holders to take profits, we stay...

Victor Galliano

Banorte (GFNORTEO MX) – No Longer Bidding for Banamex, but Tougher Fundamental Hurdles into 2023

Banorte's withdrawal from Banamex bidding is positive, but current valuations do not reflect 2023 risks, especially from higher cost of risk,...

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)