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>Despite the compression in the Brazil digital banks’ multiples from the FinTech de-rating, big fundamental hurdles remain, especially for Nubank</li>
<li>Nubank is delivering on increased loan penetration and this should drive revenue growth; still, this also drives higher and front loaded provisioning charges along with capital absorption</li>
<li>Banco Inter is less challenged than Nubank on most metrics, and it is modestly profitable, but we believe it is too early to turn positive; we like Banco do Brasil</li>
</ul>


Despite the compression in the Brazil digital banks’ multiples from the FinTech de-rating, big fundamental hurdles remain, especially for Nubank
Nubank is delivering on increased loan penetration and this should drive revenue growth; still, this also drives higher and front loaded provisioning charges along with capital absorption
Banco Inter is less challenged than Nubank on most metrics, and it is modestly profitable, but we believe it is too early to turn positive; we like Banco do Brasil


Brazil Digital Banks – Nubank and Banco Inter Shares Have De-Rated, but Still Face Challenges

<ul>
<li>Nubank remains challenged, in our view, based on rising customer acquisition costs (especially in its Mexican and Colombian expansions), high capital absorption and maturing consumer credit portfolios adding to delinquencies</li>
<li>Banco Inter has a better balanced portfolio than Nubank with its mortgage book, which should mean lower hurdles on delinquency and capital consumption, although customer acquisition costs remain clear headwinds</li>
<li>The two Brazilian digital banks’ premium valuations are hard to justify on growth potential; our research models’ base assumptions show that Nubank shares, in particular, trade on very rich valuations</li>
</ul>


Nubank remains challenged, in our view, based on rising customer acquisition costs (especially in its Mexican and Colombian expansions), high capital absorption and maturing consumer credit portfolios adding to delinquencies
Banco Inter has a better balanced portfolio than Nubank with its mortgage book, which should mean lower hurdles on delinquency and capital consumption, although customer acquisition costs remain clear headwinds
The two Brazilian digital banks’ premium valuations are hard to justify on growth potential; our research models’ base assumptions show that Nubank shares, in particular, trade on very rich valuations


A Tale of Two Brazil Digital Banks – Nubank Still Exposed to Challenges, Banco Inter Less So

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<ul>
<li>Hang Seng announced the results of the March rebalance post market close Friday. Two adds for the HSI, one set of changes for HSCEI, three sets for HSTECH.</li>
<li>An ad hoc rebalance was announced for the KOSDAQ150 following Osstem being designated an 'Administrative Issue'. In IPO world, we have LIC in India and SBI Sumishin NetBank coming up.</li>
<li>Friday was the review cutoff date for the March rebalance of the ASX200 Index. The ATO has provided Aventus with the tax ruling and that creates a timing issue.</li>
</ul>


Hang Seng announced the results of the March rebalance post market close Friday. Two adds for the HSI, one set of changes for HSCEI, three sets for HSTECH.
An ad hoc rebalance was announced for the KOSDAQ150 following Osstem being designated an 'Administrative Issue'. In IPO world, we have LIC in India and SBI Sumishin NetBank coming up.
Friday was the review cutoff date for the March rebalance of the ASX200 Index. The ATO has provided Aventus with the tax ruling and that creates a timing issue.


Index Rebalance & ETF Flow Recap: HSI, HSCEI, HSTECH, HSCI, S&P/ASX, SET50, LIC, SBI Sumishin, Crown

<ul>
<li>
<a href="https://www.smartkarma.com/entities/sbi-sumishin-net-bank" target="_blank" data-smartkarma-citation="entities:34572:1" rel="noopener">SBI Sumishin Net Bank (7163 JP)</a>'s listing has been approved by the JPX and the stock is expected to start trading on 24 March. </li>
<li>News reports indicate a raise of US$1bn (JPY 115.5bn). This translates to an IPO price of JPY 1,920/share, valuing the company at JPY 300bn (US$2.59bn).</li>
<li>The stock should be added to the <a href="https://www.smartkarma.com/entities/tokyo-stock-exchange-tokyo-price-index-topix" target="_blank" data-smartkarma-citation="entities:22910:1" rel="noopener">TPX INDEX</a> at the close on 27 April where trackers will need to buy over 14% of the stock issued in the IPO.</li>
</ul>



SBI Sumishin Net Bank (7163 JP)'s listing has been approved by the JPX and the stock is expected to start trading on 24 March. 
News reports indicate a raise of US$1bn (JPY 115.5bn). This translates to an IPO price of JPY 1,920/share, valuing the company at JPY 300bn (US$2.59bn).
The stock should be added to the TPX INDEX at the close on 27 April where trackers will need to buy over 14% of the stock issued in the IPO.


SBI Sumishin Net Bank (7163 JP) IPO: Listing in March, TPX Inclusion Possibly in April

<ul>
<li>Citi is to sell its Mexican retail and SME banking operations, which we call new Banamex; it is an attractive banking franchise that needs investment and a focus on costs</li>
<li>Based on peer group valuations, and on new Banamex’s disclosed parameters, we estimate that the disposal entity’s valuation range could range from USD7bn to USD10bn, and we identify potential bidders</li>
<li>We believe that our new Banamex valuation range emphasizes BanBajio’s attractive valuations, we stick with our positive view on mid-cap BanBajio; we believe that Banorte is fully valued</li>
</ul>


Citi is to sell its Mexican retail and SME banking operations, which we call new Banamex; it is an attractive banking franchise that needs investment and a focus on costs
Based on peer group valuations, and on new Banamex’s disclosed parameters, we estimate that the disposal entity’s valuation range could range from USD7bn to USD10bn, and we identify potential bidders
We believe that our new Banamex valuation range emphasizes BanBajio’s attractive valuations, we stick with our positive view on mid-cap BanBajio; we believe that Banorte is fully valued


Citi’s Mexican Exit; Our Thoughts on “new Banamex”

Brazil

NU Holdings Ltd. of the Cayman Islands operates as a holding company. The Company, through its subsidiaries, provides loans and digital banking services, as well as issues, administrates, processes, and transfers payments to post-paid credit cards and equity investments in other entities. NU Holdings serves clients worldwide.

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NU Holdings (NU US)

Brazil Digital Banks – Nubank and Banco Inter Shares Have De-Rated, but Still Face Challenges

The Brazil digital banks' high loan penetration should drive revenue growth, but this also accelerates NPL formation, provisioning charges and...

Victor Galliano

A Tale of Two Brazil Digital Banks – Nubank Still Exposed to Challenges, Banco Inter Less So

Nubank is more challenged than Inter, due to rising customer acquisition costs as it expands geographically, high capital absorption & with...

Victor Galliano

Index Rebalance & ETF Flow Recap: HSI, HSCEI, HSTECH, HSCI, S&P/ASX, SET50, LIC, SBI Sumishin, Crown

This recap highlights Insights covering Asian index rebalances (announcements/ forecasts/ IPO Fast Entry/ M&A driven changes). We also highlight...

Brian Freitas

SBI Sumishin Net Bank (7163 JP) IPO: Listing in March, TPX Inclusion Possibly in April

JPX has approved SBI Sumishin Net Bank's IPO and the stock should list on 24 March. First Section on listing and then to the Prime Market. TOPIX...

Brian Freitas

Citi’s Mexican Exit; Our Thoughts on “new Banamex”

Citi sale of its Mexican commercial bank, new Banamex, will need the acquirer to control opex; in this report we estimate the valuation range &...

Victor Galliano

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