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.

Event-Driven

<ul>
<li>Credit Agricole has acquired a 9.18% stake in Banco BPM, sparking takeover bid speculation; Italy is Credit Agricole’s biggest banking market ex-France, where it has been very active on M&amp;A</li>
<li>For Credit Agricole, in our view, Banco BPM’s strong Northern Italian footprint, its cleaner and stronger balance sheet and its asset management arm are all big attractions for this asset</li>
<li>We remain positive on Banco BPM, one of our 2022 High Conviction Ideas; not only a modestly valued potential M&amp;A target, but its valuations are also underpinned by improving fundamentals</li>
</ul>


Credit Agricole has acquired a 9.18% stake in Banco BPM, sparking takeover bid speculation; Italy is Credit Agricole’s biggest banking market ex-France, where it has been very active on M&amp;A
For Credit Agricole, in our view, Banco BPM’s strong Northern Italian footprint, its cleaner and stronger balance sheet and its asset management arm are all big attractions for this asset
We remain positive on Banco BPM, one of our 2022 High Conviction Ideas; not only a modestly valued potential M&amp;A target, but its valuations are also underpinned by improving fundamentals


Banco BPM: Credit Agricole Makes Its Move

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Last Week in Event SPACE:  Swire, Hitachi Metal, Jardine, Softbank, Bingo, Japan Asia, Mainstream

European Event-Driven Analyst

Jesus Rodriguez Aguilar

On 20 April, <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> boosted its 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> to €12.50/share from €12.20, regardless of any threshold met, 0.8% above my TP on <a href="https://www.smartkarma.com/insights/creval-credit-agricole-grounds-for-an-improved-offer" target="_blank" data-smartkarma-citation="insights:50036" rel="noopener">CreVal - Crédit Agricole: Grounds for an Improved Offer</a>).
Crédit Agricole holds now 91.17% of CreVal. As per the offer document, conditions for the purchase obligation are met.
<ul>
<li>
Crédit Agricole Italy will still buy your shares at a fair price should you decide to sell (probably the wisest decision, as Borsa Italiana will order the delisting).
</li>
<li>
CreVal closed at €12.29 on 26 April, a gross spread of 1.7%, and the annualised spread should, at worst, be c. 7%.
</li>
<li>
The exact payment date for shares tendered under the purchase obligation is not specified, but "as soon as possible and, in any case, no later than three months from the payment date" (30 April 2021).
</li>
<li>
Liquidity is thinner now, button exactly illiquid, c. €1.8 mn on 16 April.
</li>
<li>
Recommendation is long AND exercise the purchase obligation.
</li>
</ul>

On 20 April, Credit Agricole Sa (ACA FP) boosted its offer for Credito Valtellinese SpA (CVAL IM) to €12.50/share from €12.20, regardless of any threshold met, 0.8% above my TP on CreVal - Crédit Agricole: Grounds for an Improved Offer).
Crédit Agricole holds now 91.17% of CreVal. As per the offer document, conditions for the purchase obligation are met.


Crédit Agricole Italy will still buy your shares at a fair price should you decide to sell (probably the wisest decision, as Borsa Italiana will order the delisting).


CreVal closed at €12.29 on 26 April, a gross spread of 1.7%, and the annualised spread should, at worst, be c. 7%.


The exact payment date for shares tendered under the purchase obligation is not specified, but "as soon as possible and, in any case, no later than three months from the payment date" (30 April 2021).


Liquidity is thinner now, button exactly illiquid, c. €1.8 mn on 16 April.


Recommendation is long AND exercise the purchase obligation.



Credit Agricole/CreVal: Purchase Obligation

<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

In my previous Insight (<a href="https://www.smartkarma.com/insights/creval-credit-agricole-playing-hard-to-get" target="_blank" data-smartkarma-citation="insights:45742" rel="noopener">Creval - Crédit Agricole: Playing Hard to Get</a>) I mentioned that a sweetened bid could come around €12 per share. Whilst that has not yet happened, the Board of <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> (CreVal) issued on 29 March a statement that followed the usual script to back the assertion that the offer is "inadequate" on both stand-alone and M&amp;A (developed in the Insight).
<ul>
<li>
Stand-alone: high capital surplus, risk profile improvement, operational efficiency, DTAs, and profitability.
</li>
<li>
M&amp;A: tax benefits from conversion of DTAs to tax credits, synergies higher than those reported on the offer document, lower cost of synergies, and Crédit Agricoles's capital buffer that could use the excess capital from CreVal.
</li>
</ul>
CreVal is trading at 0.47x P/21e TBV and 13.5x P/21e E, without considering any excess capital, which could be c. 64.5% of the market cap. If considered, those ratios would be lower (below 0.3x P/21e TBV).
It is interesting to draw a comparison with CaixaBank - Bankia, or Unicaja - Liberbank, both situations covered on SmartKarma, where the former are absorbing higher capitalized entities and using the negative goodwill.
Macroeconomic environment is more positive that at the time of the offer. TP increase (from the previous €12) to €12.4 (mean TP of Capital IQ consensus, vs. €10.45 at the time of the offer), 18% above the offer, supported by expectations of an improved offer by Crédit Agricole and dividend yield of 3.9% (Capital IQ consensus).
In my view, Crédit Agricole should be able to increase the offer price to €12.4, for a total cost of c. €117 mn.
CreVal closed on 7 April at €12.16, i.e. 15.8% above the offer price of €10.5 per share (cum dividend). Gross spread to TP is 2%.

In my previous Insight (Creval - Crédit Agricole: Playing Hard to Get) I mentioned that a sweetened bid could come around €12 per share. Whilst that has not yet happened, the Board of Credito Valtellinese Sc (CVAL IM) (CreVal) issued on 29 March a statement that followed the usual script to back the assertion that the offer is "inadequate" on both stand-alone and M&amp;A (developed in the Insight).


Stand-alone: high capital surplus, risk profile improvement, operational efficiency, DTAs, and profitability.


M&amp;A: tax benefits from conversion of DTAs to tax credits, synergies higher than those reported on the offer document, lower cost of synergies, and Crédit Agricoles's capital buffer that could use the excess capital from CreVal.


CreVal is trading at 0.47x P/21e TBV and 13.5x P/21e E, without considering any excess capital, which could be c. 64.5% of the market cap. If considered, those ratios would be lower (below 0.3x P/21e TBV).
It is interesting to draw a comparison with CaixaBank - Bankia, or Unicaja - Liberbank, both situations covered on SmartKarma, where the former are absorbing higher capitalized entities and using the negative goodwill.
Macroeconomic environment is more positive that at the time of the offer. TP increase (from the previous €12) to €12.4 (mean TP of Capital IQ consensus, vs. €10.45 at the time of the offer), 18% above the offer, supported by expectations of an improved offer by Crédit Agricole and dividend yield of 3.9% (Capital IQ consensus).
In my view, Crédit Agricole should be able to increase the offer price to €12.4, for a total cost of c. €117 mn.
CreVal closed on 7 April at €12.16, i.e. 15.8% above the offer price of €10.5 per share (cum dividend). Gross spread to TP is 2%.

CreVal - Crédit Agricole: Grounds for an Improved Offer

Italy

Credito Valtellinese S.p.A. operates as a commercial bank. The Bank provides financial products and services. Credito Valtellinese serves households, small and medium enterprises, artisans, professionals, and non-profit organizations customers in Italy.

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Credito Valtellinese SpA (CVAL IM)

Banco BPM: Credit Agricole Makes Its Move

Credit Agricole's initial stake in Banco BPM suggests the first step for further acquisitive growth in Italy; based on the CreVal deal, this could...

Victor Galliano

Last Week in Event SPACE: Swire, Hitachi Metal, Jardine, Softbank, Bingo, Japan Asia, Mainstream

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Credit Agricole/CreVal: Purchase Obligation

Crédit Agricole Italy will exercise the purchase obligation. Borsa Italiana will order the delisting. CreVal closed at €12.29 on 26 April, a gross...

Jesus Rodriguez Aguilar

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

CreVal - Crédit Agricole: Grounds for an Improved Offer

The Board of CreVal has (fairly, in my view) rebutted CA's offer. Crédit Agricole should be able to increase the offer price to €12.4, for a total...

Jesus Rodriguez Aguilar

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