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

Itau Unibanco Holding  / Equity Bottom-Up

<ul>
<li>Banco do Brasil is the clear value pick among LatAm banks, with sound credit quality and capital metrics as well as positive asset sensitivity on a delayed basis</li>
<li>Itaú Unibanco is the most asset sensitive of the Brazilian banks, with its large consumer exposure, and it shows positive trends in terms of asset quality</li>
<li>Santander Brasil has greater credit quality headwinds than peers and is the least asset sensitive of the big four peers, with Bradesco’s positive asset sensitivity repricing more slowly</li>
</ul>


Banco do Brasil is the clear value pick among LatAm banks, with sound credit quality and capital metrics as well as positive asset sensitivity on a delayed basis
Itaú Unibanco is the most asset sensitive of the Brazilian banks, with its large consumer exposure, and it shows positive trends in terms of asset quality
Santander Brasil has greater credit quality headwinds than peers and is the least asset sensitive of the big four peers, with Bradesco’s positive asset sensitivity repricing more slowly


Brazil Banks: Our Picks on Asset Sensitivity and Credit Quality Are Itaú Unibanco & Banco Do Brasil

<ul>
<li>The prospect of Russia being excluded from key emerging market indices is very real, in our view, and here we focus on the iShares MSCI Emerging Markets ETF</li>
<li>The main beneficiaries of an index re-balancing would be the dominant EM Asian economies, and select African economies, but we cannot disregard LatAm and in particular we concentrate on financials</li>
<li>Largest weightings aside, we highlight our preferred LatAm financial names based on fundamentals; Banco do Brasil, B3, BanColombia and Banco del Bajio, we also remove Banorte from the sell list</li>
</ul>


The prospect of Russia being excluded from key emerging market indices is very real, in our view, and here we focus on the iShares MSCI Emerging Markets ETF
The main beneficiaries of an index re-balancing would be the dominant EM Asian economies, and select African economies, but we cannot disregard LatAm and in particular we concentrate on financials
Largest weightings aside, we highlight our preferred LatAm financial names based on fundamentals; Banco do Brasil, B3, BanColombia and Banco del Bajio, we also remove Banorte from the sell list


EM Banks and Financials – The Rebalancing in Index Weightings from the LatAm Perspective

<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’s shares are above the issue price post-IPO, with investors buying into the digital banking opportunity in Brazil as well as Mexico and Colombia</li>
<li>The bulls argue that the growth potential is not yet reflected in valuations; it has very low costs, and its positive returns will follow from greater loan and product penetration</li>
<li>Nubanks’s valuation is very stretched; good customer penetration does not yet equal deep product penetration which drives revenue growth, and new markets – Mexico and Colombia – will pressure costs</li>
</ul>


Nubank’s shares are above the issue price post-IPO, with investors buying into the digital banking opportunity in Brazil as well as Mexico and Colombia
The bulls argue that the growth potential is not yet reflected in valuations; it has very low costs, and its positive returns will follow from greater loan and product penetration
Nubanks’s valuation is very stretched; good customer penetration does not yet equal deep product penetration which drives revenue growth, and new markets – Mexico and Colombia – will pressure costs


Nubank (NU US) – IPO Done, Now Comes the Hard Part

<ul>
<li>
<a href="https://www.smartkarma.com/entities/banco-do-brasil-sa" target="_blank" data-smartkarma-citation="entities:24564:1" rel="noopener">Banco Do Brasil Sa (BBAS3 BZ)</a>’s 1Q21 results reflect its sound credit quality and coverage, as well as its healthy capital adequacy</li>
<li>Banco do Brasil’s NPL ratio is the best of the big four Brazil banks, and it also registers the lowest ratio of renegotiated loans to total loans</li>
<li>Its core capital adequacy is also the best of the big four at 1Q21, and this is despite a mark to market hit in the quarter</li>
<li>The new CEO Is committed to reduce the cost base, and enhance returns; administrative expenses declined QoQ and YoY</li>
<li>We believe that these 1Q21 results reinforce our positive view on Banco do Brasil shares and their potential to narrow the PBV ratio discount</li>
<li>Risks to our view include heightened corporate governance risks, as well as worsening credit quality in the forbearance portfolio</li>
</ul>



Banco Do Brasil Sa (BBAS3 BZ)’s 1Q21 results reflect its sound credit quality and coverage, as well as its healthy capital adequacy
Banco do Brasil’s NPL ratio is the best of the big four Brazil banks, and it also registers the lowest ratio of renegotiated loans to total loans
Its core capital adequacy is also the best of the big four at 1Q21, and this is despite a mark to market hit in the quarter
The new CEO Is committed to reduce the cost base, and enhance returns; administrative expenses declined QoQ and YoY
We believe that these 1Q21 results reinforce our positive view on Banco do Brasil shares and their potential to narrow the PBV ratio discount
Risks to our view include heightened corporate governance risks, as well as worsening credit quality in the forbearance portfolio


Banco Do Brasil (BBAS3 BZ): Solid 1Q21, with the Prospect of Improving Returns

Brazil

Itau Unibanco Holding S.A. attracts deposits and offer retail, commercial, corporate, and private banking services. The Bank offers consumer loans, financial management, insurance, pension plans, treasury services, mortgage loans, lease financing, securities brokerage, and foreign exchange services.

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Itau Unibanco Holding (ITUB4 BZ)

Brazil Banks: Our Picks on Asset Sensitivity and Credit Quality Are Itaú Unibanco & Banco Do Brasil

Itaú Unibanco, the most asset sensitive big-cap Brazil bank, benefits from the BCB's recent monetary tightening, with Banco do Brasil & its sound...

Victor Galliano

EM Banks and Financials – The Rebalancing in Index Weightings from the LatAm Perspective

Potential Russian shares exclusion from indices is real, with Asian EMs set to gain big, but do not disregard LatAm; our preferred financials are...

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 (NU US) – IPO Done, Now Comes the Hard Part

More than other digital banks, Nubank suffers from a disconnect between size of customer base & loan & deposit balances; also, we estimate that...

Victor Galliano

Banco Do Brasil (BBAS3 BZ): Solid 1Q21, with the Prospect of Improving Returns

Post 1Q21 result, we believe that Banco do Brasil's PBV ratio discount (c60%) should narrow, supported by its healthy credit quality and capital...

Victor Galliano

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