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

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

IFM gathers support from funds and large minority shareholders in its partial offer for Naturgy. According to daily Expansión, banking sources close to IFM have been working intensively in recent weeks in order to identify potential shareholders willing to attend the takeover bid. According to these sources, IFM is adding minority support and could reach its goal.
Although CriteriaCaixa continues to acquire shares in the market (25.534%, as of 1 July, according to the CNMV register), thus narrowing IFM's room for maneuver, IFM is receiving sufficient expressions of interest indications of adherence to its proposal.
According to daily Expansion, IFM has almost assured the success of its partial takeover of Naturgyy with the support of funds and some minority shareholders have already reached approximately 22% of the capital. IFM, whose objective was to obtain at least 17% of Naturgy, now hopes that the Government will approve the operation.
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Assuming institutional acceptances totaling 18% of the share capital and retail acceptances totaling 4% of the share capital, 22%, the upper band of the offer would be reached, without the need for any apportionment. Paradoxically, while CriteriaCaixa acquisitions remove shares freely trading, also reduce the chances of apportionment. 
Gross spread is 3.9%, a level I find attractive. Recommendation is long NTGY SM.
<ul>
<li>Upside risk: I do not rule out that as CriteriaCaixa keeps on buying (until a maximum of 29.99%), the share price keeps being pushed up.</li>
<li>Downside risk: more shareholders tender and there is apportionment; reduced free float (under 5%) with low liquidity. In this case, the share price would be partially supported by a c. 7% dividend yield.</li>
</ul>
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IFM gathers support from funds and large minority shareholders in its partial offer for Naturgy. According to daily Expansión, banking sources close to IFM have been working intensively in recent weeks in order to identify potential shareholders willing to attend the takeover bid. According to these sources, IFM is adding minority support and could reach its goal.
Although CriteriaCaixa continues to acquire shares in the market (25.534%, as of 1 July, according to the CNMV register), thus narrowing IFM's room for maneuver, IFM is receiving sufficient expressions of interest indications of adherence to its proposal.
According to daily Expansion, IFM has almost assured the success of its partial takeover of Naturgyy with the support of funds and some minority shareholders have already reached approximately 22% of the capital. IFM, whose objective was to obtain at least 17% of Naturgy, now hopes that the Government will approve the operation.

Assuming institutional acceptances totaling 18% of the share capital and retail acceptances totaling 4% of the share capital, 22%, the upper band of the offer would be reached, without the need for any apportionment. Paradoxically, while CriteriaCaixa acquisitions remove shares freely trading, also reduce the chances of apportionment. 
Gross spread is 3.9%, a level I find attractive. Recommendation is long NTGY SM.

Upside risk: I do not rule out that as CriteriaCaixa keeps on buying (until a maximum of 29.99%), the share price keeps being pushed up.
Downside risk: more shareholders tender and there is apportionment; reduced free float (under 5%) with low liquidity. In this case, the share price would be partially supported by a c. 7% dividend yield.






Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

On the 25 October 2013, <a href="https://www.smartkarma.com/entities/chong-hing-bank-ltd" target="_blank" data-smartkarma-citation="entities:344:1" rel="noopener">Chong Hing Bank (1111 HK)</a> ("CHB") <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2013/1025/ltn20131025786.pdf" target="_blank" rel="noopener">announced</a> an agreement with Yue Xiu (the investment arm of the Guangzhou municipal government) to acquire a maximum of 75% of the bank for a consideration of HK$11.5bn (HK$35.7/share, a 2.1x P/B).  The deal was subject to approval from the HKMA. It was Yue Xiu's intention to maintain the bank's listing.
That Offer was widely seen as supportive for the remaining family-owned banks in Hong Kong such as <a href="https://www.smartkarma.com/entities/bank-of-east-asia-ltd" target="_blank" data-smartkarma-citation="entities:341:1" rel="noopener">Bank of East Asia (23 HK)</a>, <a href="https://www.smartkarma.com/entities/dah-sing-banking-group-ltd" target="_blank" data-smartkarma-citation="entities:342:1" rel="noopener">Dah Sing Banking (2356 HK)</a>, and Wing Hang Bank, the latter of which was taken out by <a href="https://www.smartkarma.com/entities/oversea-chinese-banking-corp" target="_blank" data-smartkarma-citation="entities:114:1" rel="noopener">OCBC (OCBC SP)</a> in 2014 at 1.81x P/B in a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2014/0629/ltn20140629025.pdf" target="_blank" rel="noopener">US$4.9bn deal</a>.
The partial Offer for CHB closed on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2014/0205/ltn201402051310.pdf" target="_blank" rel="noopener">5 February 2014</a>. Shares closed yesterday at HK$10.56/share (and 0.4x P/B), down ~70% from the Partial Offer Price. BEA and DSB have similarly languished, down 33% and 42% respectively in the last five years.
<h3>The New News</h3>
CHB was suspended at <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0506/2021050600453.pdf" target="_blank" rel="noopener">10.45am</a> this morning, but not before gaining 30% to close at HK$13.76/share. That's worth a second look.
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On the 25 October 2013, Chong Hing Bank (1111 HK) ("CHB") announced an agreement with Yue Xiu (the investment arm of the Guangzhou municipal government) to acquire a maximum of 75% of the bank for a consideration of HK$11.5bn (HK$35.7/share, a 2.1x P/B).  The deal was subject to approval from the HKMA. It was Yue Xiu's intention to maintain the bank's listing.
That Offer was widely seen as supportive for the remaining family-owned banks in Hong Kong such as Bank of East Asia (23 HK), Dah Sing Banking (2356 HK), and Wing Hang Bank, the latter of which was taken out by OCBC (OCBC SP) in 2014 at 1.81x P/B in a US$4.9bn deal.
The partial Offer for CHB closed on the 5 February 2014. Shares closed yesterday at HK$10.56/share (and 0.4x P/B), down ~70% from the Partial Offer Price. BEA and DSB have similarly languished, down 33% and 42% respectively in the last five years.
The New News
CHB was suspended at 10.45am this morning, but not before gaining 30% to close at HK$13.76/share. That's worth a second look.


Chong Hing Bank (1111 HK): Takeover Talk As Shares Pop

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

EURO STOXX 50 Price EUR / Technical Analysis

Our intermediate-term outlook remains constructive with major support levels holding on the broad global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE). Still, we continue to see some reason for caution as various market dynamics have deteriorated, leading us to a more neutral outlook in the near-term.

Our intermediate-term outlook remains constructive with major support levels holding on the broad global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE). Still, we continue to see some reason for caution as various market dynamics have deteriorated, leading us to a more neutral outlook in the near-term.

<a href="https://www.smartkarma.com/entities/caixabank-sa" target="_blank" data-smartkarma-citation="entities:21255:1" rel="noopener">CaixaBank SA (CABK SM)</a> and <a href="https://www.smartkarma.com/entities/bankia-sa" target="_blank" data-smartkarma-citation="entities:21252:1" rel="noopener">Bankia SA (BKIA SM)</a> will carry out this Friday 26 March, at market close, the exchange of shares by which this merger by absorption will materialise.
<ul>
<li>This is conditional on having all the regulatory authorizations (only that of the Ministry of Economy is missing).</li>
<li>The exchange ratio was set in September at 0.6845 CaixaBank shares for each Bankia share. This valuation implied a 20% premium for Bankia shareholders.</li>
</ul>
On 23 March, the Spanish anti-trust watchdog (CNMC) gave the green light to the creation of the largest entity in Spain, establishing a series of rules agreed with the banks to restrict for a time their power in the network of branches and ATMs, cards and other products.
Fluidra will take Bankia's place on the Ibex 35. The pool manufacturer rises 13.37% this year and capitalizes €4,646 mn. It will be ranked on the 25th place, between Enagás and Merlin Properties.
Most of the merger restructuring expenses will occur in 2021 and, therefore, CET1 ratio should reach 11.9% - 12.2% for 2021e. Post-merger, organic capital generation (after dividends) should amount to about 50 bps per year. CaixaBank expects to obtain annual cost synergies of c. €770 mn and additional annual income of around €290 mn.
The proposed €0.0268 DPS (1% yield) will be subject to merger execution, and complies with the ECB cap (maximum dividend 15% of net income). That dividend includes the consolidated pro forma results of CaixaBank and adjusted Bankia. Bankia posted a FY 2020 net income of €230 mn.
At market close of 24 March, the adjusted Bankia/CaixaBank spread is -0.02%, and therefore there is no arbitrage opportunity, in my view.
(The Insight is labelled bearish because the merger spread is almost nil)

CaixaBank SA (CABK SM) and Bankia SA (BKIA SM) will carry out this Friday 26 March, at market close, the exchange of shares by which this merger by absorption will materialise.

This is conditional on having all the regulatory authorizations (only that of the Ministry of Economy is missing).
The exchange ratio was set in September at 0.6845 CaixaBank shares for each Bankia share. This valuation implied a 20% premium for Bankia shareholders.

On 23 March, the Spanish anti-trust watchdog (CNMC) gave the green light to the creation of the largest entity in Spain, establishing a series of rules agreed with the banks to restrict for a time their power in the network of branches and ATMs, cards and other products.
Fluidra will take Bankia's place on the Ibex 35. The pool manufacturer rises 13.37% this year and capitalizes €4,646 mn. It will be ranked on the 25th place, between Enagás and Merlin Properties.
Most of the merger restructuring expenses will occur in 2021 and, therefore, CET1 ratio should reach 11.9% - 12.2% for 2021e. Post-merger, organic capital generation (after dividends) should amount to about 50 bps per year. CaixaBank expects to obtain annual cost synergies of c. €770 mn and additional annual income of around €290 mn.
The proposed €0.0268 DPS (1% yield) will be subject to merger execution, and complies with the ECB cap (maximum dividend 15% of net income). That dividend includes the consolidated pro forma results of CaixaBank and adjusted Bankia. Bankia posted a FY 2020 net income of €230 mn.
At market close of 24 March, the adjusted Bankia/CaixaBank spread is -0.02%, and therefore there is no arbitrage opportunity, in my view.
(The Insight is labelled bearish because the merger spread is almost nil)

Spain

CaixaBank accepts deposits and offers banking services.  The bank offers portfolio management services, insurance, investment strategy advice, international banking services, and other specialist financial services.

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CaixaBank SA (CABK SM)

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

IFM Advances on Naturgy

According to press, 22% acceptances would highly likely be reached. Gross spread is 3.9%, an attractive level, even with minimal apportionment....

Jesus Rodriguez Aguilar

Chong Hing Bank (1111 HK): Takeover Talk As Shares Pop

A 30% gain ahead of suspension suggests there is evident news leakage of something big afoot, which would have a positive read-across for the other...

David Blennerhassett

Major Breakout For EURO STOXX 50

Our intermediate-term outlook remains constructive with major support levels holding on the broad global indexes (MSCI ACWI, ACWI ex-US, EM, and...

Vermilion Research

Bye Bye Bankia

CABK SM and BKIA SM will carry out at close of 26 March the exchange of shares. The merger spread is -0.02%, and therefore there is no arbitrage...

Jesus Rodriguez Aguilar

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