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>Brazil’s consumer credit quality trends to June showed an improvement across most series, with the exception of the credit cards category</li>
<li>System loan growth was +17.8% for the twelve months to June, an acceleration from the YoY rate for May (+16.9%), due largely to the pick-up in corporate loan growth</li>
<li>The BCB’s latest consensus estimates suggest that benchmark rate have now peaked at 13.75%; our preferred Brazilian bank remains Banco do Brasil, for good credit quality and attractive valuations</li>
</ul>


Brazil’s consumer credit quality trends to June showed an improvement across most series, with the exception of the credit cards category
System loan growth was +17.8% for the twelve months to June, an acceleration from the YoY rate for May (+16.9%), due largely to the pick-up in corporate loan growth
The BCB’s latest consensus estimates suggest that benchmark rate have now peaked at 13.75%; our preferred Brazilian bank remains Banco do Brasil, for good credit quality and attractive valuations


June Brazil Bank Data in Twelve Charts – Credit Spreads Keep Rising, NPLs More Benign

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

<ul>
<li>This is now the third Int'l Compass/third week in a row where we are discussing an increasing number of country indexes experiencing bullish 3.5-9-month downtrend reversals.</li>
<li>Importantly, all of the previously mentioned indexes are holding above their breakout levels (i.e., there has yet to be any failed breakouts).</li>
<li>Now, the U.S. dollar (DXY) is starting to show early signs of topping. We continue to believe that global equities are going through a bottoming process.</li>
</ul>


This is now the third Int'l Compass/third week in a row where we are discussing an increasing number of country indexes experiencing bullish 3.5-9-month downtrend reversals.
Importantly, all of the previously mentioned indexes are holding above their breakout levels (i.e., there has yet to be any failed breakouts).
Now, the U.S. dollar (DXY) is starting to show early signs of topping. We continue to believe that global equities are going through a bottoming process.


U.S. Dollar Topping?; Bullish Reversals Continue; Ideas in Growth/Cyclicals, Financials

<ul>
<li>Brazil’s consumer credit quality trends to April deteriorated further, and within corporates, SME credit quality trends also worsened</li>
<li>System loan growth was +16.8% for the twelve months to April which slightly accelerated from the YoY rate for March (+16.5%), due largely to the strong consumer loan growth (+21.9%)</li>
<li>The BCB’s latest consensus estimates point to further benchmark rate rises this year of another 50bps to 13.75%; this impacts credit quality, yet Brazilian banks benefit from higher loan spreads</li>
</ul>


Brazil’s consumer credit quality trends to April deteriorated further, and within corporates, SME credit quality trends also worsened
System loan growth was +16.8% for the twelve months to April which slightly accelerated from the YoY rate for March (+16.5%), due largely to the strong consumer loan growth (+21.9%)
The BCB’s latest consensus estimates point to further benchmark rate rises this year of another 50bps to 13.75%; this impacts credit quality, yet Brazilian banks benefit from higher loan spreads


April Brazil Bank Data in Twelve Charts; Consumer and SME NPLs Worsened, Higher Credit Spreads

<ul>
<li>Banco Central do Brasil has been raising benchmark interest rates aggressively since 1H2021 and we believe it is approaching the peak of its tightening cycle; this feeds into loan spreads</li>
<li>1Q22 Brazil bank results showed limited evidence of widening spreads, due to a time lag, but loan quality is worsening due to the hiking interest rates amid the soft economy</li>
<li>Disciplined loan origination should support bank returns, especially in the consumer and SME segments, containing credit cost charges growth as spreads expand; deep-value Banco do Brasil remains our top pick</li>
</ul>


Banco Central do Brasil has been raising benchmark interest rates aggressively since 1H2021 and we believe it is approaching the peak of its tightening cycle; this feeds into loan spreads
1Q22 Brazil bank results showed limited evidence of widening spreads, due to a time lag, but loan quality is worsening due to the hiking interest rates amid the soft economy
Disciplined loan origination should support bank returns, especially in the consumer and SME segments, containing credit cost charges growth as spreads expand; deep-value Banco do Brasil remains our top pick


Brazil Banks – Returns Tug of War Between Spreads and Credit Costs, Stick with Banco Do Brasil

<ul>
<li>Despite the compression in the Brazil digital banks’ multiples from the FinTech de-rating, big fundamental hurdles remain, especially for Nubank</li>
<li>Nubank is delivering on increased loan penetration and this should drive revenue growth; still, this also drives higher and front loaded provisioning charges along with capital absorption</li>
<li>Banco Inter is less challenged than Nubank on most metrics, and it is modestly profitable, but we believe it is too early to turn positive; we like Banco do Brasil</li>
</ul>


Despite the compression in the Brazil digital banks’ multiples from the FinTech de-rating, big fundamental hurdles remain, especially for Nubank
Nubank is delivering on increased loan penetration and this should drive revenue growth; still, this also drives higher and front loaded provisioning charges along with capital absorption
Banco Inter is less challenged than Nubank on most metrics, and it is modestly profitable, but we believe it is too early to turn positive; we like Banco do Brasil


Brazil Digital Banks – Nubank and Banco Inter Shares Have De-Rated, but Still Face Challenges

Brazil

Banco do Brasil S.A. attracts deposits and offers retail and commercial banking services.  The Bank offers consumer, commercial, and agribusiness loans, asset management, foreign exchange, private pension, insurance, lease financing, credit cards, and Internet banking services.

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Banco do Brasil (BBAS3 BZ)

June Brazil Bank Data in Twelve Charts – Credit Spreads Keep Rising, NPLs More Benign

In June, the Brazil bank sector experienced accelerating credit growth, rising loan rates and spreads as well as improving near term NPL trends,...

Victor Galliano

U.S. Dollar Topping?; Bullish Reversals Continue; Ideas in Growth/Cyclicals, Financials

This is now the third week in a row where we are discussing an increasing number of country indexes with bullish 3.5-9-month downtrend reversals,...

Vermilion Research

April Brazil Bank Data in Twelve Charts; Consumer and SME NPLs Worsened, Higher Credit Spreads

April Brazil banks data shows that consumer and SME credit quality trends worsened further, yet loan growth accelerated and credit spreads widened;...

Victor Galliano

Brazil Banks – Returns Tug of War Between Spreads and Credit Costs, Stick with Banco Do Brasil

Higher benchmark interest rates feed into wider spreads for Brazil banks, and in the returns tug of war between higher spreads and bigger credit...

Victor Galliano

Brazil Digital Banks – Nubank and Banco Inter Shares Have De-Rated, but Still Face Challenges

The Brazil digital banks' high loan penetration should drive revenue growth, but this also accelerates NPL formation, provisioning charges and...

Victor Galliano

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