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>Credit Agricole has acquired a 9.18% stake in Banco BPM, sparking takeover bid speculation; Italy is Credit Agricole’s biggest banking market ex-France, where it has been very active on M&amp;A</li>
<li>For Credit Agricole, in our view, Banco BPM’s strong Northern Italian footprint, its cleaner and stronger balance sheet and its asset management arm are all big attractions for this asset</li>
<li>We remain positive on Banco BPM, one of our 2022 High Conviction Ideas; not only a modestly valued potential M&amp;A target, but its valuations are also underpinned by improving fundamentals</li>
</ul>


Credit Agricole has acquired a 9.18% stake in Banco BPM, sparking takeover bid speculation; Italy is Credit Agricole’s biggest banking market ex-France, where it has been very active on M&amp;A
For Credit Agricole, in our view, Banco BPM’s strong Northern Italian footprint, its cleaner and stronger balance sheet and its asset management arm are all big attractions for this asset
We remain positive on Banco BPM, one of our 2022 High Conviction Ideas; not only a modestly valued potential M&amp;A target, but its valuations are also underpinned by improving fundamentals


Banco BPM: Credit Agricole Makes Its Move

Equity Bottom-Up

<ul>
<li>Among EM banks, our top picks are Sberbank in Russia, Banco do Brasil and HDFC Bank in India; we are negative on recent IPO Nubank due to inflated market expectations</li>
<li>Our top picks for 2022 are BBVA and Banco BPM for Southern Europe banks. In Exchanges, we are positive on B3 of Brazil and SGX</li>
<li>In payments, we like Mastercard and Pagseguro, but we are negative on Paytm; we see BTG Pactual as an attractive pick and winner in the digital wealth managers and brokers</li>
</ul>


Among EM banks, our top picks are Sberbank in Russia, Banco do Brasil and HDFC Bank in India; we are negative on recent IPO Nubank due to inflated market expectations
Our top picks for 2022 are BBVA and Banco BPM for Southern Europe banks. In Exchanges, we are positive on B3 of Brazil and SGX
In payments, we like Mastercard and Pagseguro, but we are negative on Paytm; we see BTG Pactual as an attractive pick and winner in the digital wealth managers and brokers


2022 High Conviction Ideas in FinTech & Financials

<ul>
<li>CASA’s enhanced offer for <a href="https://www.smartkarma.com/entities/credito-valtellinese-spa" target="_blank" data-smartkarma-citation="entities:21175:1" rel="noopener">Credito Valtellinese SpA (CVAL IM)</a> confirms the appetite for M&amp;A in Southern Europe, and Italy in particular</li>
<li>We expect Italian M&amp;A to be largely intra-country, as the key factors driving consolidation is the need for greater domestic scale given the lower for longer interest rates, especially in Europe, as well as the march of digital banking globally</li>
<li>After <a href="https://www.smartkarma.com/entities/intesa-sanpaolo-spa" target="_blank" data-smartkarma-citation="entities:21200:1" rel="noopener">Intesa Sanpaolo (ISP IM)</a>-UBI, and now potentially the conclusion of CASA Italia-CreVal, the focus is on the future of <a href="https://www.smartkarma.com/entities/banca-monte-dei-paschi-di-siena" target="_blank" data-smartkarma-citation="entities:21162:1" rel="noopener">Banca Monte dei Paschi di Siena (BMPS IM)</a> </li>
<li>A combination between <a href="https://www.smartkarma.com/entities/banco-bpm-spa" target="_blank" data-smartkarma-citation="entities:28121:1" rel="noopener">Banco BPM SpA (BAMI IM)</a> and <a href="https://www.smartkarma.com/entities/bper-banca-s-p-a" target="_blank" data-smartkarma-citation="entities:21165:1" rel="noopener">BPER Banca S.p.A (BPE IM)</a> now seems less likely; this implies that Banco BPM is a potential contender, once again, to combine with BMPS; the latter has largely de-risked its balance sheet, even if its core capital ratio is low</li>
<li>We would see a BPM-BMPS union as a major positive catalyst for a <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a>  re-rating; even if Unicredit were to acquire BMPS, we believe that, at current valuations, a lot of the risks are discounted</li>
<li>Risks to our positive Unicredit view include Unicredit’s acquisition of BMPS on unfavourable terms, as well as worse than expected organic performance of revenue growth, given the challenging interest rate environment</li>
</ul>


CASA’s enhanced offer for Credito Valtellinese SpA (CVAL IM) confirms the appetite for M&amp;A in Southern Europe, and Italy in particular
We expect Italian M&amp;A to be largely intra-country, as the key factors driving consolidation is the need for greater domestic scale given the lower for longer interest rates, especially in Europe, as well as the march of digital banking globally
After Intesa Sanpaolo (ISP IM)-UBI, and now potentially the conclusion of CASA Italia-CreVal, the focus is on the future of Banca Monte dei Paschi di Siena (BMPS IM) 
A combination between Banco BPM SpA (BAMI IM) and BPER Banca S.p.A (BPE IM) now seems less likely; this implies that Banco BPM is a potential contender, once again, to combine with BMPS; the latter has largely de-risked its balance sheet, even if its core capital ratio is low
We would see a BPM-BMPS union as a major positive catalyst for a UniCredit SpA (UCG IM)  re-rating; even if Unicredit were to acquire BMPS, we believe that, at current valuations, a lot of the risks are discounted
Risks to our positive Unicredit view include Unicredit’s acquisition of BMPS on unfavourable terms, as well as worse than expected organic performance of revenue growth, given the challenging interest rate environment


Southern Europe Banks: Focus on Italian Banks M&A

<ul>
<li>The rotation into value stocks has lifted bank valuations across the board, especially in developed markets</li>
<li>Even if we could see a pause in the near term, we believe that the rotation has further to run</li>
<li>We screen our universe of European banks for attractive valuations and resilient balance sheets, especially on credit quality and capital, post 4Q20 results</li>
<li>We highlight <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc-a723bd63-0890-486f-aaa0-3bb9ad2b95ce" target="_blank" data-smartkarma-citation="entities:21976:1" rel="noopener">HSBC Holdings (HSBA LN)</a>, <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a> and <a href="https://www.smartkarma.com/entities/caixabank-sa" target="_blank" data-smartkarma-citation="entities:21255:1" rel="noopener">CaixaBank SA (CABK SM)</a>; we turn positive on <a href="https://www.smartkarma.com/entities/banco-bpm-spa" target="_blank" data-smartkarma-citation="entities:28121:1" rel="noopener">Banco BPM SpA (BAMI IM)</a>, where we had previously been concerned about potentially problematic M&amp;A</li>
<li>In Northern Europe, <a href="https://www.smartkarma.com/entities/jyske-bank-a-s" target="_blank" data-smartkarma-citation="entities:22404:1" rel="noopener">Jyske Bank A/S (JYSK DC)</a> in Denmark screens well amongst the smaller caps, on both valuation and balance sheet strength</li>
<li>Risks to our view include a worse than expected macro-economic recovery with slower growth impacting credit quality, demand for credit and lower for longer interest rates and spreads</li>
</ul>


The rotation into value stocks has lifted bank valuations across the board, especially in developed markets
Even if we could see a pause in the near term, we believe that the rotation has further to run
We screen our universe of European banks for attractive valuations and resilient balance sheets, especially on credit quality and capital, post 4Q20 results
We highlight HSBC Holdings (HSBA LN), UniCredit SpA (UCG IM) and CaixaBank SA (CABK SM); we turn positive on Banco BPM SpA (BAMI IM), where we had previously been concerned about potentially problematic M&amp;A
In Northern Europe, Jyske Bank A/S (JYSK DC) in Denmark screens well amongst the smaller caps, on both valuation and balance sheet strength
Risks to our view include a worse than expected macro-economic recovery with slower growth impacting credit quality, demand for credit and lower for longer interest rates and spreads


European Bank Screens 4Q20 – Our Picks in the Rotation to Value

<ul>
<li>
<a href="https://www.smartkarma.com/entities/credit-agricole-sa" target="_blank" data-smartkarma-citation="entities:21373:1" rel="noopener">Credit Agricole Sa (ACA FP)</a> -  CASA – has made a cash offer of €10.50 per share for <a href="https://www.smartkarma.com/entities/credito-valtellinese-spa" target="_blank" data-smartkarma-citation="entities:21175:1" rel="noopener">Credito Valtellinese Sc (CVAL IM)</a> which values it at €736m, equivalent to 0.4x PBV</li>
<li>The successful acquisition will consolidate Credit Agricole Italia as the seventh largest bank by total assets in the country, with a 5% bank branch market share</li>
<li>The cash acquisition is expected to impact CredAg’s CET1 ratio – which was 12.6% at 3Q20 – by less than 20bps</li>
<li>CredAg Italia’s NPL ratio was 6.6% at 3Q20, with CreVal’s favourably comparable NPL ratio of 6.4%; CredAg Italia does, nonetheless, have better NPL coverage than CreVal</li>
<li>CredAg was rumoured to be a potential bidder for <a href="https://www.smartkarma.com/entities/banco-bpm-spa" target="_blank" data-smartkarma-citation="entities:28121:1" rel="noopener">Banco BPM SpA (BAMI IM)</a>, but management has opted for the smaller and more digestible CreVal as its Italian acquisition, with limited impact on CASA’S and CredAg Italia’s capital adequacy and credit quality</li>
<li>Banco BPM, with its market capitalisation of €2.8bn, its NPL ratio of 8.6% and NPL coverage of 48% at 3Q20 is a riskier proposition</li>
<li>Shares in Banco BPM were down 3.7% on the 23<sup>rd</sup> November, with CASA’s shares rising 4%, no doubt on shareholder relief that it did not acquire Banco BPM</li>
<li>We see further near term downside for Banco BPM shares, in view of the CreVal news; yet we are positive on BPM’s medium term fundamentals as management continues to successful de-risk the credit portfolio going forward and build core capital</li>
<li>BPM management should be thinking more in terms of domestic consolidation candidates</li>
<li>Risks to our near term negative view on Banco BPM include the emergence of a bidder or merger partner in the near term</li>
</ul>



Credit Agricole Sa (ACA FP) -  CASA – has made a cash offer of €10.50 per share for Credito Valtellinese Sc (CVAL IM) which values it at €736m, equivalent to 0.4x PBV
The successful acquisition will consolidate Credit Agricole Italia as the seventh largest bank by total assets in the country, with a 5% bank branch market share
The cash acquisition is expected to impact CredAg’s CET1 ratio – which was 12.6% at 3Q20 – by less than 20bps
CredAg Italia’s NPL ratio was 6.6% at 3Q20, with CreVal’s favourably comparable NPL ratio of 6.4%; CredAg Italia does, nonetheless, have better NPL coverage than CreVal
CredAg was rumoured to be a potential bidder for Banco BPM SpA (BAMI IM), but management has opted for the smaller and more digestible CreVal as its Italian acquisition, with limited impact on CASA’S and CredAg Italia’s capital adequacy and credit quality
Banco BPM, with its market capitalisation of €2.8bn, its NPL ratio of 8.6% and NPL coverage of 48% at 3Q20 is a riskier proposition
Shares in Banco BPM were down 3.7% on the 23rd November, with CASA’s shares rising 4%, no doubt on shareholder relief that it did not acquire Banco BPM
We see further near term downside for Banco BPM shares, in view of the CreVal news; yet we are positive on BPM’s medium term fundamentals as management continues to successful de-risk the credit portfolio going forward and build core capital
BPM management should be thinking more in terms of domestic consolidation candidates
Risks to our near term negative view on Banco BPM include the emergence of a bidder or merger partner in the near term


Credit Agricole SA Opts for CreVal M&A, Banco BPM (BAMI IM) Side-Lined

Italy

Banco BPM SpA is a leading Italian banking group, providing a wide range of financial products and services including retail banking, corporate banking, private banking, investment banking, asset management, and insurance. The bank caters to private customers, small businesses, and large corporations across Italy. It was formed on January 1, 2017, from the merger of Banco Popolare and Banca Popolare di Milano, and is headquartered in Milan, Italy.

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Banco BPM (BAMI IM)

Banco BPM: Credit Agricole Makes Its Move

Credit Agricole's initial stake in Banco BPM suggests the first step for further acquisitive growth in Italy; based on the CreVal deal, this could...

Victor Galliano

2022 High Conviction Ideas in FinTech & Financials

Our 2022 high conviction ideas include buys on Sberbank, Banco do Brasil and HDFC Bank, as well as BBVA, Banco BPM, B3, SGX, Mastercard and...

Victor Galliano

Southern Europe Banks: Focus on Italian Banks M&A

The prospect of Italian bank sector M&A in Italy is overly penalizing Unicredit shares for the risk of a BMPS deal. With the BPM-BPER union called...

Victor Galliano

European Bank Screens 4Q20 – Our Picks in the Rotation to Value

The rotation to value benefits European banks, and there is further to go. 4Q20 results show resilient balance sheets; we focus on HSBC, Unicredit,...

Victor Galliano

Credit Agricole SA Opts for CreVal M&A, Banco BPM (BAMI IM) Side-Lined

CredAg was rumoured to be a potential bidder for Banco BPM, but management has opted for the smaller CreVal as its Italian consolidation choice; we...

Victor Galliano

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