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>Itausa is trading at a HoldCo NAV discount in excess of 25%, which is historically rare; we reiterate our positive view on Itausa</li>
<li>We believe that the NAV is under-estimated; separate from Itausa’s stake in XP, Itaú Unibanco, which is Itausa’s core holding with a 37.2% stake, has a direct 9.96% XP stake</li>
<li>Adding its indirect XP stake share to Itausa’s NAV implies a discount of 27%; since December 2008, only on 11% of the month end datapoints has Itausa’s discount exceeded 25%</li>
</ul>


Itausa is trading at a HoldCo NAV discount in excess of 25%, which is historically rare; we reiterate our positive view on Itausa
We believe that the NAV is under-estimated; separate from Itausa’s stake in XP, Itaú Unibanco, which is Itausa’s core holding with a 37.2% stake, has a direct 9.96% XP stake
Adding its indirect XP stake share to Itausa’s NAV implies a discount of 27%; since December 2008, only on 11% of the month end datapoints has Itausa’s discount exceeded 25%


Itausa (ITSA4 BZ) – Historically Big NAV Discount Buying Opportunity

<ul>
<li>Itausa is trading at a stated 24.4% discount to the HoldCo’s NAV, with the discount having widened sharply since last month; we turn positive on Itausa</li>
<li>We believe that the discount under-estimates the stated NAV; separate from Itausa’s stake in XP, Itaú Unibanco, in which Itausa holds a 37.2% stake, has a direct 11.36% XP stake</li>
<li>Adding its indirect XP stake share to Itausa’s NAV implies a discount of 26.1%; since December 2008, only on 11% of the month end datapoints has Itausa’s discount exceeded 25%</li>
</ul>


Itausa is trading at a stated 24.4% discount to the HoldCo’s NAV, with the discount having widened sharply since last month; we turn positive on Itausa
We believe that the discount under-estimates the stated NAV; separate from Itausa’s stake in XP, Itaú Unibanco, in which Itausa holds a 37.2% stake, has a direct 11.36% XP stake
Adding its indirect XP stake share to Itausa’s NAV implies a discount of 26.1%; since December 2008, only on 11% of the month end datapoints has Itausa’s discount exceeded 25%


Itausa (ITSA4 BZ) – Historically Wide, and Potentially Understated, NAV Discount

Equity Bottom-Up

<ul>
<li>Itaú Unibanco’s acquisition of an 11.36% stake in XP in April is no strategic move; it is a contractual obligation that remained, after the regulator blocked Itaú’s acquisition plans</li>
<li>This adds to the existing overhang in XP shares, given that fellow XP shareholder Itausa deems its 11.5% XP stake to be non-strategic, having already made disposals through block trades</li>
<li>We remain cautious on XP shares based on the disposal overhang and competitive pressures in Brazilian wealth management undermining XP’s fundamentals; near term, Itausa warrants monitoring on its NAV discount</li>
</ul>


Itaú Unibanco’s acquisition of an 11.36% stake in XP in April is no strategic move; it is a contractual obligation that remained, after the regulator blocked Itaú’s acquisition plans
This adds to the existing overhang in XP shares, given that fellow XP shareholder Itausa deems its 11.5% XP stake to be non-strategic, having already made disposals through block trades
We remain cautious on XP shares based on the disposal overhang and competitive pressures in Brazilian wealth management undermining XP’s fundamentals; near term, Itausa warrants monitoring on its NAV discount


XP (XP US) – Less Demanding Valuations, but the Overhang Still Weighs

<ul>
<li>Itausa is trading at an 19.6% discount to the HoldCo’s NAV, with the discount narrowing sharply over the last two months</li>
<li>In addition, after a big increase in the dividend per share announced due to 2021 results, we believe that it is unlikely to see another big increase going forward</li>
<li>Banco Itaú Unibanco, Itausa’s largest investment, is positively geared to the hiking interest rate cycle by the Brazil central bank; we prefer direct exposure to the bank versus the holdco</li>
</ul>


Itausa is trading at an 19.6% discount to the HoldCo’s NAV, with the discount narrowing sharply over the last two months
In addition, after a big increase in the dividend per share announced due to 2021 results, we believe that it is unlikely to see another big increase going forward
Banco Itaú Unibanco, Itausa’s largest investment, is positively geared to the hiking interest rate cycle by the Brazil central bank; we prefer direct exposure to the bank versus the holdco


Itausa (ITSA4 BZ) – Too Narrow a NAV Discount, and the Dividend Yield Is No Longer Compelling

<ul>
<li>
<a href="https://www.smartkarma.com/entities/bradespar-sa" target="_blank" data-smartkarma-citation="entities:24510:1" rel="noopener">Bradespar SA (BRAP4 BZ)</a> is an attractive investment, as a discounted vehicle through which to gain exposure to iron ore miner <a href="https://www.smartkarma.com/entities/vale-sa-7721577f-6c6a-4536-a829-92551c2bcd7f" target="_blank" data-smartkarma-citation="entities:27725:1" rel="noopener">Vale SA (VALE3 BZ)</a> </li>
<li>We believe that the current 25% discount to the NAV at Bradespar is excessive, and that this should narrow in the near term</li>
<li>Vale’s fundamentals are robust, supported by s strong iron ore price and, as an exporter, benefiting from a weak BRL</li>
<li>
<a href="https://www.smartkarma.com/entities/itausa-investimentos-itau-pr" target="_blank" data-smartkarma-citation="entities:24513:1" rel="noopener">Itausa-Investimentos Itau-Pr (ITSA4 BZ)</a> is trading close to its long run and 18 month average discount to the NAV; we are neutral on Itausa</li>
<li>Risks to our positive view on Bradespar include a sustained weakening in iron ore prices, a strengthening of the BRL as well as a worsening of sentiment towards Brazil and Latin American equities generally</li>
</ul>



Bradespar SA (BRAP4 BZ) is an attractive investment, as a discounted vehicle through which to gain exposure to iron ore miner Vale SA (VALE3 BZ) 
We believe that the current 25% discount to the NAV at Bradespar is excessive, and that this should narrow in the near term
Vale’s fundamentals are robust, supported by s strong iron ore price and, as an exporter, benefiting from a weak BRL

Itausa-Investimentos Itau-Pr (ITSA4 BZ) is trading close to its long run and 18 month average discount to the NAV; we are neutral on Itausa
Risks to our positive view on Bradespar include a sustained weakening in iron ore prices, a strengthening of the BRL as well as a worsening of sentiment towards Brazil and Latin American equities generally


A Tale of Two Brazilian HoldCos; We Prefer Bradespar (BRAP4 BZ) Over Itausa (ITSA4 BZ)

Brazil

Itausa SA operates as a investment holding company. The Company, through its subsidiaries, invests in companies in such areas as the financial, as well as the wood paneling, ceramic and metal sanitary, ceramic coatings, clothing, footwear, and gaspipelines. Itausa serves clients worldwide.

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Itausa (ITSA4 BZ)

Itausa (ITSA4 BZ) – Historically Big NAV Discount Buying Opportunity

Itausa is trading at a HoldCo NAV discount of 25%+, which is rare; in addition, we estimate that Itausa's enhanced NAV discount is a historically...

Victor Galliano

Itausa (ITSA4 BZ) – Historically Wide, and Potentially Understated, NAV Discount

Itausa's NAV discount of c25% drives our positive view; with Itausa's indirect XP stake share, the discount reaches 26%; over 162 monthly...

Victor Galliano

XP (XP US) – Less Demanding Valuations, but the Overhang Still Weighs

XP's less demanding valuation is not enough, in our view, to offset the big share overhang, and competition in Brazil wealth management is...

Victor Galliano

Itausa (ITSA4 BZ) – Too Narrow a NAV Discount, and the Dividend Yield Is No Longer Compelling

Itausa's NAV discount has narrowed sharply, it has little scope of dividend growth, and is selling down its XP stake at a tricky moment; we prefer...

Victor Galliano

A Tale of Two Brazilian HoldCos; We Prefer Bradespar (BRAP4 BZ) Over Itausa (ITSA4 BZ)

Bradespar holdco is a vehicle that provides discounted exposure to iron ore miner Vale; we see the current 25% discount to the Bradespar NAV as...

Victor Galliano

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