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


Event-Driven

<ul>
<li>Multiple announcements from <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> have been well received by the market</li>
<li>The key news item, in our view, is that <a href="https://www.smartkarma.com/entities/stoneco-ltd" target="_blank" data-smartkarma-citation="entities:27564:1" rel="noopener">StoneCo Ltd (STNE US)</a>  is to invest BRL2.5bn in Banco Inter via new shares issued in an up and coming follow on issue, as a cornerstone investor</li>
<li>StoneCo is also granted the right of first refusal in the case of change of control of Banco Inter, for a period of 6 years</li>
<li>Banco Inter and StoneCo are to explore business opportunities that can leverage the strength of both companies to enhance growth potential</li>
<li>In addition, Banco Inter is also studying and assessing a potential corporate reorganization including the migration of its Banco Inter shareholder base to holdco Inter Platform Inc, shares of which would be intended to be NASDAQ listed</li>
<li>These developments do not change our view on Banco Inter; we have argued in past reports that it would need more capital to grow and it has now announced a follow-on, even if the potential downside risks has been offset by the prospective new investor StoneCo and the potential for their commercial partnerships</li>
<li>Our view is that both Banco Inter and StoneCo, although sound partners, have a major challenge to justify their premium valuations, at a time when competition across the board in digital financial services in Brazil is only intensifying</li>
<li>Risks to our bearish views on Banco Inter and StoneCo include better than expected revenue growth from cross-selling and synergies in their partnership, as well as better than expected loan growth and merchant services penetration</li>
</ul>


Multiple announcements from Banco Inter SA (BIDI11 BZ) have been well received by the market
The key news item, in our view, is that StoneCo Ltd (STNE US)  is to invest BRL2.5bn in Banco Inter via new shares issued in an up and coming follow on issue, as a cornerstone investor
StoneCo is also granted the right of first refusal in the case of change of control of Banco Inter, for a period of 6 years
Banco Inter and StoneCo are to explore business opportunities that can leverage the strength of both companies to enhance growth potential
In addition, Banco Inter is also studying and assessing a potential corporate reorganization including the migration of its Banco Inter shareholder base to holdco Inter Platform Inc, shares of which would be intended to be NASDAQ listed
These developments do not change our view on Banco Inter; we have argued in past reports that it would need more capital to grow and it has now announced a follow-on, even if the potential downside risks has been offset by the prospective new investor StoneCo and the potential for their commercial partnerships
Our view is that both Banco Inter and StoneCo, although sound partners, have a major challenge to justify their premium valuations, at a time when competition across the board in digital financial services in Brazil is only intensifying
Risks to our bearish views on Banco Inter and StoneCo include better than expected revenue growth from cross-selling and synergies in their partnership, as well as better than expected loan growth and merchant services penetration


Banco Inter & StoneCo – Interesting Concept, Challenging on Execution

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/mercadolibre-inc" target="_blank" data-smartkarma-citation="entities:27954:1" rel="noopener">MercadoLibre Inc (MELI US)</a> shares have continued to re-rate, supported by positive 3Q20 results</li>
<li>E-commerce and payments growth rates are accelerating, as MELI is a key LatAm beneficiary of the pandemic shift to e-commerce and digital payments</li>
<li>Consensus estimate revisions are positive, as shown in the chart, and this has powered share price momentum</li>
<li>On valuations, however, we believe that these are stretched; the 2021 revenue multiple is double that of <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> </li>
<li>Even on our generous assumptions for a simple SOTP valuation, MELI valuations look stretched</li>
<li>In the light of the positive vaccine news, we believe that tech pandemic beneficiaries, including MELI, are exposed to sentiment-driven investor rotation out of high valuation tech names and into value stocks</li>
<li>Risks to our cautious view on MELI include a continued fast pace of e-commerce and digital payments activity in LatAm driving revenue, EBITDA and net profit higher</li>
</ul>



MercadoLibre Inc (MELI US) shares have continued to re-rate, supported by positive 3Q20 results
E-commerce and payments growth rates are accelerating, as MELI is a key LatAm beneficiary of the pandemic shift to e-commerce and digital payments
Consensus estimate revisions are positive, as shown in the chart, and this has powered share price momentum
On valuations, however, we believe that these are stretched; the 2021 revenue multiple is double that of Alibaba Group (BABA US) 
Even on our generous assumptions for a simple SOTP valuation, MELI valuations look stretched
In the light of the positive vaccine news, we believe that tech pandemic beneficiaries, including MELI, are exposed to sentiment-driven investor rotation out of high valuation tech names and into value stocks
Risks to our cautious view on MELI include a continued fast pace of e-commerce and digital payments activity in LatAm driving revenue, EBITDA and net profit higher


Mercado Libre (MELI US): Share Momentum Driven by Fundamentals, but Exposed to Stretched Valuations

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial (1051260D CH)</a>/Ant Group is a technology company that provides digital payment services and digital financial services to consumers and small and micro businesses (SMBs) in China and across the world. Ant said last week it would pursue a simultaneous dual-listing in Hong Kong and on the Shanghai stock exchange’s STAR board. The Hong Kong share sale alone could raise about $10 billion at a $200 billion valuation, according to press reports. </p><div class="content-highlight"><p>In this note, we take a first look at Ant and run through its history, industry and operating segments. We then take a closer look at the rumoured $200 billion valuation in the context of Ant’s financial performance. Based on available disclosure, our estimates and peer group multiples, the $200 billion valuation is justifiable, in our view.  </p></div>

Ant Financial (1051260D CH)/Ant Group is a technology company that provides digital payment services and digital financial services to consumers and small and micro businesses (SMBs) in China and across the world. Ant said last week it would pursue a simultaneous dual-listing in Hong Kong and on the Shanghai stock exchange’s STAR board. The Hong Kong share sale alone could raise about $10 billion at a $200 billion valuation, according to press reports. In this note, we take a first look at Ant and run through its history, industry and operating segments. We then take a closer look at the rumoured $200 billion valuation in the context of Ant’s financial performance. Based on available disclosure, our estimates and peer group multiples, the $200 billion valuation is justifiable, in our view.  

Ant Group IPO First Look: Swarming to Market

<ul>
<li>A week after the announcement that <a href="https://www.smartkarma.com/entities/facebook-inc-a" target="_blank" data-smartkarma-citation="entities:665:1" rel="noopener">Facebook Inc A (FB US)</a> owned WhatsApp launched its payments app in Brazil, the Brazil Central Bank (BCB) has suspended its operation</li>
<li>
<a href="https://www.smartkarma.com/entities/cielo-sa" target="_blank" data-smartkarma-citation="entities:24750:1" rel="noopener">Cielo SA (CIEL3 BZ)</a> is adversely impacted as the app's first and so far sole payments processor in Brazil; Mastercard and Visa have also been ordered by BCB to suspend domestic WhatsApp app payments</li>
<li>BCB has stated that its action is to ensure a proper functioning and competitive market in payments going forward; the anti-trust body CADE sees the WhatsApp-Cielo tie up as a "joint venture" which needs to be reviewed</li>
<li>Last week it seemed that <a href="https://www.smartkarma.com/entities/cielo-sa" target="_blank" data-smartkarma-citation="entities:24750:1" rel="noopener">Cielo SA (CIEL3 BZ)</a> had an edge versus the competition in the crowded payments space with the WhatsApp deal; the BCB's suspension and review leaves <a href="https://www.smartkarma.com/entities/cielo-sa" target="_blank" data-smartkarma-citation="entities:24750:1" rel="noopener">Cielo SA (CIEL3 BZ)</a> shares exposed to the downside, but should act as some short term support for other Brazilian acquirers and sub-acquirers</li>
<li>Risks to our negative view on <a href="https://www.smartkarma.com/entities/cielo-sa" target="_blank" data-smartkarma-citation="entities:24750:1" rel="noopener">Cielo SA (CIEL3 BZ)</a> include a fast resolution and a reversal of the suspension, and better than expected merchant acquiring market share for Cielo</li>
</ul>


A week after the announcement that Facebook Inc A (FB US) owned WhatsApp launched its payments app in Brazil, the Brazil Central Bank (BCB) has suspended its operation

Cielo SA (CIEL3 BZ) is adversely impacted as the app's first and so far sole payments processor in Brazil; Mastercard and Visa have also been ordered by BCB to suspend domestic WhatsApp app payments
BCB has stated that its action is to ensure a proper functioning and competitive market in payments going forward; the anti-trust body CADE sees the WhatsApp-Cielo tie up as a "joint venture" which needs to be reviewed
Last week it seemed that Cielo SA (CIEL3 BZ) had an edge versus the competition in the crowded payments space with the WhatsApp deal; the BCB's suspension and review leaves Cielo SA (CIEL3 BZ) shares exposed to the downside, but should act as some short term support for other Brazilian acquirers and sub-acquirers
Risks to our negative view on Cielo SA (CIEL3 BZ) include a fast resolution and a reversal of the suspension, and better than expected merchant acquiring market share for Cielo


Cielo (CIEL3 BZ) & Facebook (FB US), Did They Jump the Gun?: WhatsApp Payments Suspended in Brazil

Brazil

StoneCo Ltd. provides financial technology solutions. The Company offers end-to-end cloud-based technology platform to conduct electronic commerce across in-store, online, and mobile channels. StoneCo serves customers in Brazil.

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

StoneCo (STNE 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

Banco Inter & StoneCo – Interesting Concept, Challenging on Execution

We believe that Inter and StoneCo are sound business partners, but have a big challenge to justify their premium valuations, when competition in...

Victor Galliano

Ant Group IPO First Look: Swarming to Market

Ant Financial (1051260D CH)/Ant Group is a technology company that provides digital payment services and digital financial services to consumers...

Arun George

Cielo (CIEL3 BZ) & Facebook (FB US), Did They Jump the Gun?: WhatsApp Payments Suspended in Brazil

A week after the announcement that Facebook Inc A (FB US) owned WhatsApp launched its payments app in Brazil, the Brazil Central Bank (BCB) has...

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

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

Banco Inter & StoneCo – Interesting Concept, Challenging on Execution

We believe that Inter and StoneCo are sound business partners, but have a big challenge to justify their premium valuations, when competition in...

Victor Galliano

Mercado Libre (MELI US): Share Momentum Driven by Fundamentals, but Exposed to Stretched Valuations

Mercado Libre is a beneficiary of the pandemic-driven shift to e-commerce and e-payments, but its valuation is stretched, EPS revisions are fading...

Victor Galliano

Ant Group IPO First Look: Swarming to Market

Ant Financial (1051260D CH)/Ant Group is a technology company that provides digital payment services and digital financial services to consumers...

Arun George

Cielo (CIEL3 BZ) & Facebook (FB US), Did They Jump the Gun?: WhatsApp Payments Suspended in Brazil

A week after the announcement that Facebook Inc A (FB US) owned WhatsApp launched its payments app in Brazil, the Brazil Central Bank (BCB) has...

Victor Galliano