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.

Thematic (Sector/Industry)

<ul>
<li>Our key positive picks in payments are two Brazilian companies, <a href="https://www.smartkarma.com/entities/pagseguro-digital-ltd" target="_blank" data-smartkarma-citation="entities:27939:1" rel="noopener">Pagseguro Digital Ltd (PAGS US)</a> and <a href="https://www.smartkarma.com/entities/cielo-sa" target="_blank" data-smartkarma-citation="entities:24750:1" rel="noopener">Cielo SA (CIEL3 BZ)</a> </li>
<li>PagSeguro is our main pick, attractive on GARP metrics and with its higher take rate, it is our preference over its closest peer StoneCo</li>
<li>Cielo, the leading legacy payments company in Brazil, has seen its shares under pressure; yet fundamentals should be supported by the recent approval of WhatsApp Payments, given that Cielo is WhatsApp’s processor of payments</li>
<li>
<a href="https://www.smartkarma.com/entities/dlocal-ltd-uruguay" target="_blank" data-smartkarma-citation="entities:33377:1" rel="noopener">DLocal Ltd/Uruguay (DLO US)</a> listed on NASDAQ in early June; the shares are up by 150% from its IPO price, and, even given the growth potential, valuations are looking full, so we see an opportunity to take profits</li>
<li>
<a href="https://www.smartkarma.com/entities/square-inc" target="_blank" data-smartkarma-citation="entities:23755:1" rel="noopener">Square Inc (SQ US)</a> is another premium growth story, but one where we believe current valuations are running ahead of the fundamental prospects</li>
<li>
<a href="https://www.smartkarma.com/entities/paypal-holdings-inc" target="_blank" data-smartkarma-citation="entities:4747:1" rel="noopener">Paypal Holdings (PYPL US)</a>  and <a href="https://www.smartkarma.com/entities/mastercard-inc-class-a" target="_blank" data-smartkarma-citation="entities:15529:1" rel="noopener">Mastercard (MA US)</a>, although not as compelling on valuations as PagSeguro and Cielo, are also attractive stocks</li>
<li>Risks to our positive view on Cielo include lower than expected revenues from the WhatsApp Payments contract and for PagSeguro this includes a weaker than expected business climate for its core SME client base; risks to our negative calls on DLocal and Square include stronger than expected transaction activity and revenue generation going forward</li>
</ul>


Our key positive picks in payments are two Brazilian companies, Pagseguro Digital Ltd (PAGS US) and Cielo SA (CIEL3 BZ) 
PagSeguro is our main pick, attractive on GARP metrics and with its higher take rate, it is our preference over its closest peer StoneCo
Cielo, the leading legacy payments company in Brazil, has seen its shares under pressure; yet fundamentals should be supported by the recent approval of WhatsApp Payments, given that Cielo is WhatsApp’s processor of payments

DLocal Ltd/Uruguay (DLO US) listed on NASDAQ in early June; the shares are up by 150% from its IPO price, and, even given the growth potential, valuations are looking full, so we see an opportunity to take profits

Square Inc (SQ US) is another premium growth story, but one where we believe current valuations are running ahead of the fundamental prospects

Paypal Holdings (PYPL US)  and Mastercard (MA US), although not as compelling on valuations as PagSeguro and Cielo, are also attractive stocks
Risks to our positive view on Cielo include lower than expected revenues from the WhatsApp Payments contract and for PagSeguro this includes a weaker than expected business climate for its core SME client base; risks to our negative calls on DLocal and Square include stronger than expected transaction activity and revenue generation going forward


Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<div class="content-highlight">
<div style="text-align: start;">Our base case valuation of Kakao Pay is an implied market cap of 12.1 trillion won or 89,335 won per share.</div>
<div style="text-align: start;"></div>
<ul>
<li>Our base case valuation is based on 10.7x EV/Sales multiple and applying this to our estimated sales of 954 billion won in 2022.</li>
<li>The EV/S multiple of 10.7x is based on the median valuation multiple of the comps in 2022.</li>
</ul>
<p>The IPO price range is from 63,000 won to 96,000 won. If the IPO is priced near the high end of the IPO price range, we would avoid this deal. <span>On the other hand, if the IPO is priced close to the low end of the IPO price range, we would be more comfortable with taking the deal.</span></p>
</div>


Our base case valuation of Kakao Pay is an implied market cap of 12.1 trillion won or 89,335 won per share.


Our base case valuation is based on 10.7x EV/Sales multiple and applying this to our estimated sales of 954 billion won in 2022.
The EV/S multiple of 10.7x is based on the median valuation multiple of the comps in 2022.

The IPO price range is from 63,000 won to 96,000 won. If the IPO is priced near the high end of the IPO price range, we would avoid this deal. On the other hand, if the IPO is priced close to the low end of the IPO price range, we would be more comfortable with taking the deal.


<div class="content-highlight">
<p>Kakao Pay is offering 17 million shares in the IPO at the price range of 63,000 won to 96,000 won per share. The IPO deal size range is from $948 million to $1.4 billion. According to the bankers' valuation, the expected market cap range would be from 8.6 trillion won to 13.0 trillion won.</p>
<p>At the high end of the market cap range (13.0 trillion won), this would represent the 31st largest market cap in KOSPI. Samsung Securities, Goldman Sachs, and JP Morgan are the lead underwriters of this IPO. </p>
<p>According to the company, it plans to use 381 billion won of the IPO proceeds in business operations/working capital. It plans to use the remaining 680 billion won in IPO proceeds for M&amp;A purposes. </p>
</div><table class="table table-striped">
<colgroup>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td style="width: 214pt;"><div>Deal Specifics of the Kakao Pay IPO:</div></td>
<td style="width: 292pt;"> </td>
</tr>
<tr>
<td>Lead underwriters of the IPO: </td>
<td style="width: 292pt;">Samsung Securities, Goldman Sachs, JP Morgan, Daishin Securities</td>
</tr>
<tr>
<td>Expected IPO price per share: </td>
<td style="width: 292pt;">63,000 won (low)/96,000 won (high)</td>
</tr>
<tr>
<td>Number of Shares for IPO:</td>
<td style="width: 292pt;">17m shares (new shares)</td>
</tr>
<tr>
<td>IPO base deal size: </td>
<td style="width: 292pt;">US$948 mn (low);  US$1,444 mn (high)</td>
</tr>
<tr>
<td>Expected common shares outstanding, fully diluted (post-IPO):  </td>
<td style="width: 292pt;">135.9m shares</td>
</tr>
<tr>
<td>Expected market cap after IPO:</td>
<td style="width: 292pt;">8,562 billion won (low)/13,046 billion won (high)</td>
</tr>
<tr>
<td>Book open: </td>
<td style="text-align: left; width: 292pt;">29-Jul-21</td>
</tr>
<tr>
<td>Book closed:</td>
<td style="text-align: left; width: 292pt;">20-Jul-21</td>
</tr>
<tr>
<td>Listing date: </td>
<td style="text-align: left; width: 292pt;">12-Aug-21</td>
</tr>
<tr>
<td>Source: Company data</td>
<td style="width: 292pt;"> </td>
</tr>
</tbody>
</table>


Kakao Pay is offering 17 million shares in the IPO at the price range of 63,000 won to 96,000 won per share. The IPO deal size range is from $948 million to $1.4 billion. According to the bankers' valuation, the expected market cap range would be from 8.6 trillion won to 13.0 trillion won.
At the high end of the market cap range (13.0 trillion won), this would represent the 31st largest market cap in KOSPI. Samsung Securities, Goldman Sachs, and JP Morgan are the lead underwriters of this IPO. 
According to the company, it plans to use 381 billion won of the IPO proceeds in business operations/working capital. It plans to use the remaining 680 billion won in IPO proceeds for M&amp;A purposes. 







Deal Specifics of the Kakao Pay IPO:
 


Lead underwriters of the IPO: 
Samsung Securities, Goldman Sachs, JP Morgan, Daishin Securities


Expected IPO price per share: 
63,000 won (low)/96,000 won (high)


Number of Shares for IPO:
17m shares (new shares)


IPO base deal size: 
US$948 mn (low);  US$1,444 mn (high)


Expected common shares outstanding, fully diluted (post-IPO):  
135.9m shares


Expected market cap after IPO:
8,562 billion won (low)/13,046 billion won (high)


Book open: 
29-Jul-21


Book closed:
20-Jul-21


Listing date: 
12-Aug-21


Source: Company data
 




<div class="content-highlight">
<p>Kakao Bank is offering 65.45 million shares in the IPO at the IPO price of 33,000 won to 39,000 won per share. The IPO deal size range is from $1.9 billion to $2.3 billion. According to the bankers' valuation, the expected market cap range would be from 15.8 trillion won to 18.6 trillion won.</p>
<p>At the high end of the market cap range (18.6 trillion won), this would represent the 22nd largest market cap in KOSPI. At double the market cap of the high end of IPO range (37.2 trillion won), Kakao Bank would represent the 10th largest stock in KOSPI. </p>
</div><p>The book building for the institutional investors starts on 20 July 2021. This IPO is scheduled to start trading on 5 August 20201. KB Securites, Credit Susse ,and Citi Global Markets are the lead underwriters of this IPO. </p><table class="table table-striped">
<colgroup>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td style="width: 229pt;"><div style="text-align: start;"><div>Deal Specifics of the Kakao Bank IPO:</div></div></td>
<td style="width: 227pt;"> </td>
</tr>
<tr>
<td>Lead underwriters of the IPO: </td>
<td style="width: 227pt;">KB Securities, Credit Suisse, Citi Global Markets, Korea Investment &amp; Securities</td>
</tr>
<tr>
<td>Expected IPO price per share: </td>
<td style="width: 227pt;">33,000 won (low)/39,000 won (high)</td>
</tr>
<tr>
<td>Number of Shares for IPO:</td>
<td style="width: 227pt;">65.45m shares (new shares)</td>
</tr>
<tr>
<td>IPO base deal size: </td>
<td style="width: 227pt;">US$1.9bn (low);  US$2.3bn (high)</td>
</tr>
<tr>
<td>Expected common shares outstanding, fully diluted (post-IPO):  </td>
<td style="width: 227pt;">477.77m shares</td>
</tr>
<tr>
<td>Expected market cap after IPO:</td>
<td style="width: 227pt;">15.8 trillion won (low)/18.6 trillion won (high)</td>
</tr>
<tr>
<td>Book open: </td>
<td style="text-align: left; width: 227pt;">20-Jul-21</td>
</tr>
<tr>
<td>Book closed:</td>
<td style="text-align: left; width: 227pt;">21-Jul-21</td>
</tr>
<tr>
<td>Listing date: </td>
<td style="text-align: left; width: 227pt;">5-Aug-21</td>
</tr>
<tr>
<td>Source: Company data</td>
<td> </td>
</tr>
</tbody>
</table>


Kakao Bank is offering 65.45 million shares in the IPO at the IPO price of 33,000 won to 39,000 won per share. The IPO deal size range is from $1.9 billion to $2.3 billion. According to the bankers' valuation, the expected market cap range would be from 15.8 trillion won to 18.6 trillion won.
At the high end of the market cap range (18.6 trillion won), this would represent the 22nd largest market cap in KOSPI. At double the market cap of the high end of IPO range (37.2 trillion won), Kakao Bank would represent the 10th largest stock in KOSPI. 
The book building for the institutional investors starts on 20 July 2021. This IPO is scheduled to start trading on 5 August 20201. KB Securites, Credit Susse ,and Citi Global Markets are the lead underwriters of this IPO. 






Deal Specifics of the Kakao Bank IPO:
 


Lead underwriters of the IPO: 
KB Securities, Credit Suisse, Citi Global Markets, Korea Investment &amp; Securities


Expected IPO price per share: 
33,000 won (low)/39,000 won (high)


Number of Shares for IPO:
65.45m shares (new shares)


IPO base deal size: 
US$1.9bn (low);  US$2.3bn (high)


Expected common shares outstanding, fully diluted (post-IPO):  
477.77m shares


Expected market cap after IPO:
15.8 trillion won (low)/18.6 trillion won (high)


Book open: 
20-Jul-21


Book closed:
21-Jul-21


Listing date: 
5-Aug-21


Source: Company data
 




<ul>
<li>We think of value based on traditional valuation metrics, such as PE multiples and PBV ratios, and supplement these by metrics like PE to growth ratios to identify the more attractive names amongst growth – including FinTech – stocks</li>
<li>In Brazil, we continue to like <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>  and we add <a href="https://www.smartkarma.com/entities/banco-bradesco-sa" target="_blank" data-smartkarma-citation="entities:24569:1" rel="noopener">Banco Bradesco Sa (BBDC4 BZ)</a> to the attractive value category</li>
<li>We turn cautious on Brazilian challenger <a href="https://www.smartkarma.com/entities/banco-inter-sa" target="_blank" data-smartkarma-citation="entities:28162:1" rel="noopener">Banco Inter SA (BIDI11 BZ)</a>, based on valuation; it trades on a consensus 2022E PBV ratio of 17.8x and even compared to Nubank’s estimated valuation, and those of other digital banks, Inter seems expensive</li>
<li>In Mexico, <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MF)</a> is much more of a positive consensus recommendation, yet we still believe that the stock has further to run</li>
<li>There is heightened political risk in Peru; <a href="https://www.smartkarma.com/entities/credicorp-ltd" target="_blank" data-smartkarma-citation="entities:25963:1" rel="noopener">Credicorp Ltd (BAP US)</a>  has de-rated and is a stock to watch</li>
<li>Among the LatAm payments companies, we are positive on <a href="https://www.smartkarma.com/entities/pagseguro-digital-ltd" target="_blank" data-smartkarma-citation="entities:27939:1" rel="noopener">Pagseguro Digital Ltd (PAGS US)</a> </li>
<li>Despite its premium growth in AUM, we are cautious on <a href="https://www.smartkarma.com/entities/xp-inc" target="_blank" data-smartkarma-citation="entities:28619:1" rel="noopener">XP Inc (XP US)</a>, due to eroding take rate and rising IFA costs</li>
<li>In exchanges, <a href="https://www.smartkarma.com/entities/b3-sa-brasil-bolsa-balcao" target="_blank" data-smartkarma-citation="entities:24580:1" rel="noopener">B3 Sa - Brasil Bolsa Balcao (B3SA3 BZ)</a>’s valuations have descended from the stratosphere but we believe that this stock could have further downside risk</li>
<li>Risks to our positive view on Banco do Brasil and Bradesco include higher than expected NPLs and lower than expected credit spreads, as well as soft fee growth; similar risks apply to Banorte, BanBajio and in the case of Credicorp we also add political risk; Banco Inter’s upside risks include better than expected opex control especially on new customer acquisition driving better than expected returns; XP upside risks include higher than expected take rate and lower than expected opex, and B3 could deliver stronger than expected revenue growth in FICC and derivatives especially</li>
</ul>


We think of value based on traditional valuation metrics, such as PE multiples and PBV ratios, and supplement these by metrics like PE to growth ratios to identify the more attractive names amongst growth – including FinTech – stocks
In Brazil, we continue to like Banco Do Brasil Sa (BBAS3 BZ)  and we add Banco Bradesco Sa (BBDC4 BZ) to the attractive value category
We turn cautious on Brazilian challenger Banco Inter SA (BIDI11 BZ), based on valuation; it trades on a consensus 2022E PBV ratio of 17.8x and even compared to Nubank’s estimated valuation, and those of other digital banks, Inter seems expensive
In Mexico, Grupo Financiero Banorte-O (GFNORTEO MF) is much more of a positive consensus recommendation, yet we still believe that the stock has further to run
There is heightened political risk in Peru; Credicorp Ltd (BAP US)  has de-rated and is a stock to watch
Among the LatAm payments companies, we are positive on Pagseguro Digital Ltd (PAGS US) 
Despite its premium growth in AUM, we are cautious on XP Inc (XP US), due to eroding take rate and rising IFA costs
In exchanges, B3 Sa - Brasil Bolsa Balcao (B3SA3 BZ)’s valuations have descended from the stratosphere but we believe that this stock could have further downside risk
Risks to our positive view on Banco do Brasil and Bradesco include higher than expected NPLs and lower than expected credit spreads, as well as soft fee growth; similar risks apply to Banorte, BanBajio and in the case of Credicorp we also add political risk; Banco Inter’s upside risks include better than expected opex control especially on new customer acquisition driving better than expected returns; XP upside risks include higher than expected take rate and lower than expected opex, and B3 could deliver stronger than expected revenue growth in FICC and derivatives especially


LatAm Financials Review: Focus on the Value Opportunities

Brazil

PagSeguro Digital Ltd. provides financial technology services. The Company offers multiple digital payment solutions, in-person payments via point of sales devices, and prepaid cards services. Pagseguro Digital serves clients in Brazil and the United States.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Pagseguro Digital Ltd (PAGS US)

Payments Companies – Our Core Picks

From our review of ten payments companies, we pick PagSeguro and Cielo as buys; we would take profits on recently listed DLocal and Square; other...

Victor Galliano

Kakao Pay IPO Valuation Analysis

Our base case valuation of Kakao Pay is an implied market cap of 12.1 trillion won or 89,335 won per share, which is based on 10.7x EV/Sales...

Douglas Kim

Kakao Pay IPO Preview

Kakao Pay is offering 17 million shares in the IPO at the price range of 63,000 won to 96,000 won per share. The IPO deal size range is from $948...

Douglas Kim

Kakao Bank IPO Preview

Kakao Bank is offering 65.45 million shares in the IPO at the IPO price of 33,000 won to 39,000 won per share. The expected market cap range would...

Douglas Kim

LatAm Financials Review: Focus on the Value Opportunities

We identify the most attractive LatAm financials on value and GARP metrics; Banco do Brasil, Bradesco, Banorte, BanBajio, PagSeguro; we are...

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)