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>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

<ul>
<li>Nubank remains challenged, in our view, based on rising customer acquisition costs (especially in its Mexican and Colombian expansions), high capital absorption and maturing consumer credit portfolios adding to delinquencies</li>
<li>Banco Inter has a better balanced portfolio than Nubank with its mortgage book, which should mean lower hurdles on delinquency and capital consumption, although customer acquisition costs remain clear headwinds</li>
<li>The two Brazilian digital banks’ premium valuations are hard to justify on growth potential; our research models’ base assumptions show that Nubank shares, in particular, trade on very rich valuations</li>
</ul>


Nubank remains challenged, in our view, based on rising customer acquisition costs (especially in its Mexican and Colombian expansions), high capital absorption and maturing consumer credit portfolios adding to delinquencies
Banco Inter has a better balanced portfolio than Nubank with its mortgage book, which should mean lower hurdles on delinquency and capital consumption, although customer acquisition costs remain clear headwinds
The two Brazilian digital banks’ premium valuations are hard to justify on growth potential; our research models’ base assumptions show that Nubank shares, in particular, trade on very rich valuations


A Tale of Two Brazil Digital Banks – Nubank Still Exposed to Challenges, Banco Inter Less So

<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

Equity Capital Markets

<ul>
<li>Nubank has revised down its IPO pricing range by close to 20% to USD41.5bn, driven largely by challenging market conditions; this verifies our negative valuation opinion in our previous report</li>
<li>The revised prospectus includes Softbank as Nubank’s new potential cornerstone investor; this is putting pressure on the shares of digital challenger Banco Inter, in which Softbank has a 15% stake</li>
<li>The revised Nubank pricing range narrows the valuation gap with other digital and commercial banks; yet Nubank’s premium valuations need to be justified by medium term super premium earnings growth</li>
</ul>


Nubank has revised down its IPO pricing range by close to 20% to USD41.5bn, driven largely by challenging market conditions; this verifies our negative valuation opinion in our previous report
The revised prospectus includes Softbank as Nubank’s new potential cornerstone investor; this is putting pressure on the shares of digital challenger Banco Inter, in which Softbank has a 15% stake
The revised Nubank pricing range narrows the valuation gap with other digital and commercial banks; yet Nubank’s premium valuations need to be justified by medium term super premium earnings growth


Nubank’s Revised IPO Pricing Range, and the Emergence of a New Potential Cornerstone Investor

Stock Investing Ideas, Stock Telegram

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<ul><li>The epic collapse of Stone’s recent share price has similarities to the waterfall price declines of mortgage-related stocks back in 2009.</li><li>Panic sellers, aided by algorithms, have sunk this Brazilian fintech company down to levels not seen since its IPO.</li><li>First, a little about Stone (STNE). They provide financial technology to merchants to conduct electronic commerce across in-store, online, and mobile channels in Brazil.</li></ul>

The epic collapse of Stone’s recent share price has similarities to the waterfall price declines of mortgage-related stocks back in 2009.Panic sellers, aided by algorithms, have sunk this Brazilian fintech company down to levels not seen since its IPO.First, a little about Stone (STNE). They provide financial technology to merchants to conduct electronic commerce across in-store, online, and mobile channels in Brazil.

Did the Collapse of Stone (STNE) Create an Opportunity for Value Investors?

Brazil

Inter & Co, Inc. operates as an investment holding company. The Company, through its subsidiaries, serves customers in Brazil.

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Inter & Co (INTR US)

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

A Tale of Two Brazil Digital Banks – Nubank Still Exposed to Challenges, Banco Inter Less So

Nubank is more challenged than Inter, due to rising customer acquisition costs as it expands geographically, high capital absorption & with...

Victor Galliano

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

Nubank’s Revised IPO Pricing Range, and the Emergence of a New Potential Cornerstone Investor

Post the price reduction, the jury is still out on the after-market in Nubank shares; Banco Inter is nearing attractive value territory even if...

Victor Galliano

Did the Collapse of Stone (STNE) Create an Opportunity for Value Investors?

The epic collapse of Stone’s recent share price has similarities to the waterfall price declines of mortgage-related stocks back in 2009. Panic...

Stock Telegram

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