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

Banco Bilbao Vizcaya Argentari / Event-Driven

<ul>
<li>In our view, the PNC-BBVA USA Bancshares deal reflects the trend towards “in country” domestic bank consolidation in developed markets, given very low interest rates, the pressure on fees and the need to focus on opex reduction</li>
<li>The attractive price tag of USD11.6bn (€9.7bn) provides <a href="https://www.smartkarma.com/entities/banco-bilbao-vizcaya-argentari" target="_blank" data-smartkarma-citation="entities:21251:1" rel="noopener">Banco Bilbao Vizcaya Argentari (BBVA SM)</a> with a big capital uplift at a limited cost to earnings; it reflects a historic (2019A) PE multiple of 19.7x and PTBV ratio of 1.34x, equivalent to 45% of market cap on at the close of 13<sup>th</sup> November</li>
<li>The US commercial bank disposal also gives BBVA a 294bps boost to its core capital ratio, which stood at 11.52% at 3Q20 end, and post deal would result in CET1 ratio of c 14.5%</li>
<li>Even though BBVA’s disposal will be EPS dilutive post-deal, the cost of foregone earnings is relatively low, given the sale price; USA Bancshares accounted for less than 10% of groups earnings in 2019 and 13% of the group’s gross income in the first nine months of 2020</li>
<li>BBVA management intends to redeploy capital in its core markets, and also has the option to do a large share buy-back at current share prices, ECB permitting</li>
<li>The big question is how management will focus on excess capital redeployment through potential M&amp;A going forward, and will look to redress the earnings split between its core emerging (c 70%) and developed markets (c 30%), post this disposal; we put forward our views on M&amp;A options in this report</li>
<li>Risks to our positive view on BBVA include the ECB maintaining strict regulatory constraints on a share buyback; also that BBVA is selling its USA franchise at a relatively low point in the macro-economic cycle</li>
</ul>


In our view, the PNC-BBVA USA Bancshares deal reflects the trend towards “in country” domestic bank consolidation in developed markets, given very low interest rates, the pressure on fees and the need to focus on opex reduction
The attractive price tag of USD11.6bn (€9.7bn) provides Banco Bilbao Vizcaya Argentari (BBVA SM) with a big capital uplift at a limited cost to earnings; it reflects a historic (2019A) PE multiple of 19.7x and PTBV ratio of 1.34x, equivalent to 45% of market cap on at the close of 13th November
The US commercial bank disposal also gives BBVA a 294bps boost to its core capital ratio, which stood at 11.52% at 3Q20 end, and post deal would result in CET1 ratio of c 14.5%
Even though BBVA’s disposal will be EPS dilutive post-deal, the cost of foregone earnings is relatively low, given the sale price; USA Bancshares accounted for less than 10% of groups earnings in 2019 and 13% of the group’s gross income in the first nine months of 2020
BBVA management intends to redeploy capital in its core markets, and also has the option to do a large share buy-back at current share prices, ECB permitting
The big question is how management will focus on excess capital redeployment through potential M&amp;A going forward, and will look to redress the earnings split between its core emerging (c 70%) and developed markets (c 30%), post this disposal; we put forward our views on M&amp;A options in this report
Risks to our positive view on BBVA include the ECB maintaining strict regulatory constraints on a share buyback; also that BBVA is selling its USA franchise at a relatively low point in the macro-economic cycle


BBVA: So Long, Sun-Belt – What Next; Buybacks and Potentially M&A?

Equity Bottom-Up

<ul>
<li>Ripley Corp operates in Chile and Peru, in retailing, real estate investments in shopping malls as well as banking and other consumer financial services in both countries. Ripley is the second largest issuer of credit cards in Chile and Peru</li>
<li>We estimate that the Ripley finance operations, based on our Sum of The Parts (SOTP) valuation, have a valuation range of USD1.14bn to USD1.43bn, which would equate to a low of 69% and a high of 86% versus Ripley Corp’s market capitalization</li>
<li>Although Ripley Corp appears expensive versus its LatAm peers, we believe that it is an attractive investment versus its Chilean peers especially on consensus PE multiples of 16.2x for 2019E and 15.2x for 2020E</li>
<li>The high net debt to equity ratio of the group is not a major concern, as interest cover is healthy; we like the high return and focused consumer banking businesses in Chile and Peru which, in our opinion, account for most of the group’s market value</li>
</ul>


Ripley Corp operates in Chile and Peru, in retailing, real estate investments in shopping malls as well as banking and other consumer financial services in both countries. Ripley is the second largest issuer of credit cards in Chile and Peru
We estimate that the Ripley finance operations, based on our Sum of The Parts (SOTP) valuation, have a valuation range of USD1.14bn to USD1.43bn, which would equate to a low of 69% and a high of 86% versus Ripley Corp’s market capitalization
Although Ripley Corp appears expensive versus its LatAm peers, we believe that it is an attractive investment versus its Chilean peers especially on consensus PE multiples of 16.2x for 2019E and 15.2x for 2020E
The high net debt to equity ratio of the group is not a major concern, as interest cover is healthy; we like the high return and focused consumer banking businesses in Chile and Peru which, in our opinion, account for most of the group’s market value


Ripley Corp's Banking Business Dominates the Group's Market Valuation

Peru

Intercorp Financial Services operates as a bank. The Company offers insurance, wealth management, internet banking, ATMs, and other related services. Intercorp Financial Services serves customers in Peru.

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