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

El Puerto de Liverpool SAB de / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/27611" target="_blank" data-smartkarma-citation="entities:27611:1">El Puerto de Liverpool SAB de (LIVEPOLC MM)</a> is a leading Mexican department stores and apparel retailer. Liverpool is also the third largest issuer of credit cards in Mexico – and the largest non-bank issuer – after BBVA Bancomer and CitiBanamex</li>
<li>Liverpool has a high revenue yield and high-quality consumer credit portfolio. It has relatively low delinquency in its USD1.6bn credit card portfolio, with a 5.2% NPL ratio, and NPL coverage of 2.47x at 1Q19</li>
<li>We do an analysis of Liverpool’s consumer credit business, and estimate that it has a valuation range of USD660m to USD1,500m, equivalent to a range of 7.5% to 17% of the market capitalisation</li>
<li>We believe that Liverpool is an attractively valued equity in the retail space, trading on consensus PE multiples of 13x for 2019E and 11.4x for 2020E, and EV/EBITDA multiples of 8x for 2019E and 7.4x for 2020E</li>
</ul>



El Puerto de Liverpool SAB de (LIVEPOLC MM) is a leading Mexican department stores and apparel retailer. Liverpool is also the third largest issuer of credit cards in Mexico – and the largest non-bank issuer – after BBVA Bancomer and CitiBanamex
Liverpool has a high revenue yield and high-quality consumer credit portfolio. It has relatively low delinquency in its USD1.6bn credit card portfolio, with a 5.2% NPL ratio, and NPL coverage of 2.47x at 1Q19
We do an analysis of Liverpool’s consumer credit business, and estimate that it has a valuation range of USD660m to USD1,500m, equivalent to a range of 7.5% to 17% of the market capitalisation
We believe that Liverpool is an attractively valued equity in the retail space, trading on consensus PE multiples of 13x for 2019E and 11.4x for 2020E, and EV/EBITDA multiples of 8x for 2019E and 7.4x for 2020E


El Puerto De Liverpool; Attractive Value in Retailing and Consumer Finance

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Thematic (Sector/Industry)

<ul>
<li>The Mexican president Andres Manuel Lopez Obrador (AMLO) announced at the annual Mexican bank association (ABM) convention on the 22nd March that there would be no cap or regulatory-enforced reduction in Mexican banking fee and commission charges</li>
<li>AMLO stated that he expects fees to decline going forward, as a result of increased competition between banks; in the ABM convention, it was also announced that banks will charge zero commissions on the planned platform for digital payments</li>
<li>This seems a better outcome on fees than the market expected - at least in the near term, as fees are still on the political agenda - and there was greater emphasis at the convention on how to achieve increased financial inclusion, via digital banking initiatives</li>
<li>Yet we still believe that bank fees could be a bone of contention over the medium term, and we show the FY 2018 ratio of fees to revenues and to assets for eight banks, in the charts below</li>
<li>The January 2019 Mexican banks data implies slower system loan growth going forward, yet credit quality remains healthy and credit spreads are holding steady</li>
<li>Despite the volatile global markets, in the short term banks like <a href="https://www.smartkarma.com/entities/24780" target="_blank" data-smartkarma-citation="entities:24780:1">Grupo Financiero Banorte-O (GFNORTEO MM)</a> could benefit from the "fee relief"; longer term, we would highlight <a href="https://www.smartkarma.com/entities/27889" target="_blank" data-smartkarma-citation="entities:27889:1">Gentera SAB De CV (GENTERA* MM EQUITY)</a> as an attractive fundamental pick in Mexican banks</li>
</ul>


The Mexican president Andres Manuel Lopez Obrador (AMLO) announced at the annual Mexican bank association (ABM) convention on the 22nd March that there would be no cap or regulatory-enforced reduction in Mexican banking fee and commission charges
AMLO stated that he expects fees to decline going forward, as a result of increased competition between banks; in the ABM convention, it was also announced that banks will charge zero commissions on the planned platform for digital payments
This seems a better outcome on fees than the market expected - at least in the near term, as fees are still on the political agenda - and there was greater emphasis at the convention on how to achieve increased financial inclusion, via digital banking initiatives
Yet we still believe that bank fees could be a bone of contention over the medium term, and we show the FY 2018 ratio of fees to revenues and to assets for eight banks, in the charts below
The January 2019 Mexican banks data implies slower system loan growth going forward, yet credit quality remains healthy and credit spreads are holding steady
Despite the volatile global markets, in the short term banks like Grupo Financiero Banorte-O (GFNORTEO MM) could benefit from the "fee relief"; longer term, we would highlight Gentera SAB De CV (GENTERA* MM EQUITY) as an attractive fundamental pick in Mexican banks


Mexican Banks - Near Term Relief on Fees from the ABM Convention; Thoughts on January's Bank Data

<ul class="">
<li>We take a contrarian bullish view on microfinance bank <a href="https://www.smartkarma.com/entities/27889" target="_blank" data-smartkarma-citation="entities:27889:1">Gentera SAB De CV (GENTERA* MM EQUITY)</a> , despite the AMLO headwinds, and a cautious stance on <a href="https://www.smartkarma.com/entities/24780" target="_blank" data-smartkarma-citation="entities:24780:1">Grupo Financiero Banorte-O (GFNORTEO MM)</a>
</li>
<li>AMLO push to increase financial inclusion in Mexico, focused on the low income and rural population, may add to bank sector costs at the margin without materially impacting revenues</li>
<li>Early fears of increased intervention in the bank sector – such as capping fees and commissions – appear to have abated. Interest-free loans for micro-entrepreneurs have hit sentiment on microfinance and consumer finance stocks, especially <a href="https://www.smartkarma.com/entities/27889" target="_blank" data-smartkarma-citation="entities:27889:1">Gentera SAB De CV (GENTERA* MM EQUITY)</a>; we believe, on a medium-term view, these concerns may be overdone</li>
<li>We would be cautious on the Mexican big cap banks, and especially <a href="https://www.smartkarma.com/entities/24780" target="_blank" data-smartkarma-citation="entities:24780:1">Grupo Financiero Banorte-O (GFNORTEO MM)</a> ; we see downside risk to consensus estimates from overly-positive GFI acquisition synergies, and potential pressure on local government loan rates over the medium term</li>
<li>We are neutral on <a href="https://www.smartkarma.com/entities/24776" target="_blank" data-smartkarma-citation="entities:24776:1">Grupo Financiero Inbursa-O (GFINBURO MM)</a>  and <a href="https://www.smartkarma.com/entities/27672" target="_blank" data-smartkarma-citation="entities:27672:1">Banco Santander Mexico-B (BSMXB MM)</a> , we like BBVA Bancomer long-dated unsecured bonds as an alternative to Mexican bank equity exposure</li>
</ul>


We take a contrarian bullish view on microfinance bank Gentera SAB De CV (GENTERA* MM EQUITY) , despite the AMLO headwinds, and a cautious stance on Grupo Financiero Banorte-O (GFNORTEO MM)

AMLO push to increase financial inclusion in Mexico, focused on the low income and rural population, may add to bank sector costs at the margin without materially impacting revenues
Early fears of increased intervention in the bank sector – such as capping fees and commissions – appear to have abated. Interest-free loans for micro-entrepreneurs have hit sentiment on microfinance and consumer finance stocks, especially Gentera SAB De CV (GENTERA* MM EQUITY); we believe, on a medium-term view, these concerns may be overdone
We would be cautious on the Mexican big cap banks, and especially Grupo Financiero Banorte-O (GFNORTEO MM) ; we see downside risk to consensus estimates from overly-positive GFI acquisition synergies, and potential pressure on local government loan rates over the medium term
We are neutral on Grupo Financiero Inbursa-O (GFINBURO MM)  and Banco Santander Mexico-B (BSMXB MM) , we like BBVA Bancomer long-dated unsecured bonds as an alternative to Mexican bank equity exposure


Mexican Banks AMLO Effect; Less Bad than Feared?

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Grupo Financiero Inbursa-O / Equity Bottom-Up

<p>We published an insight into Mexican banks in June prior to a huge rally in asset prices. <a href="https://www.smartkarma.com/insights/cock-your-sombrero-angles-are-attitudes" target="_blank">https://www.smartkarma.com/insights/cock-your-sombrero-angles-are-attitudes</a></p>
<p>We revisit the theme with an update covering four banks and some additional thoughts.</p>

We published an insight into Mexican banks in June prior to a huge rally in asset prices. https://www.smartkarma.com/insights/cock-your-sombrero-angles-are-attitudes
We revisit the theme with an update covering four banks and some additional thoughts.

Mexico

Grupo Financiero Inbursa, SAB de C.V. is a holding company.  The Company, through its subsidiaries, attracts deposits and offers retail and commercial banking services.  The Bank manages stock and fixed income funds, and offers fire, transportation, automobile, agriculture, liability, casualty, and health insurance.  Inbursa also offers automobile and equipment lease financing.

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Grupo Financiero Inbursa-O (GFINBURO MM)

El Puerto De Liverpool; Attractive Value in Retailing and Consumer Finance

El Puerto de Liverpool SAB de (LIVEPOLC MM) is a leading Mexican department stores and apparel retailer. Liverpool is also the third largest...

Victor Galliano

Mexican Banks - Near Term Relief on Fees from the ABM Convention; Thoughts on January's Bank Data

The Mexican president Andres Manuel Lopez Obrador (AMLO) announced at the annual Mexican bank association (ABM) convention on the 22nd March that...

Boost Research

Mexican Banks AMLO Effect; Less Bad than Feared?

We take a contrarian bullish view on microfinance bank Gentera SAB De CV (GENTERA* MM EQUITY) , despite the AMLO headwinds, and a cautious stance...

Boost Research

Mexican Banks: Post-Election Assessment

We published an insight into Mexican banks in June prior to a huge rally in asset prices....

Paul Hollingworth

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