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>
<a href="https://www.smartkarma.com/entities/28023" target="_blank" data-smartkarma-citation="entities:28023:1">Guararapes Confeccoes SA (GUAR3 BZ)</a>, is a top three competitor to Brazilian market leader <a href="https://www.smartkarma.com/entities/24472" target="_blank" data-smartkarma-citation="entities:24472:1">Lojas Renner SA (LREN3 BZ)</a> in apparel retail</li>
<li>Its consumer credit book, including credit card loan exposure, of BRL4.1bn (USD1.1bn) is held by Guararapes’ 100% owned corporate vehicle for consumer credit, Midway Financiera. Midway  has delivered premium ROAE over 2015-18, and, although its NPL coverage is lower than Renner's, it has a very solid capital position</li>
<li>We apply a bear (9x) and bull (16x) range of historic (2018A) PE multiples for its consumer finance arm Midway Financiera. We estimate that this values Guararapes’ consumer credit businesses in a range of USD500-889m, equivalent to a range of 22%-38% of Guararapes' market capitalisation</li>
<li>We believe that Guararapes equity is an attractive investment, trading on consensus PE multiples of 15.6x for 2019E and 12.8x for 2020E, and EV/EBITDA multiples of 8.2x for 2019E and 7.1x for 2020E. Although we recognise that Guararapes should trade at a discount to Renner, we believe that Guararapes has potential to re-rate and narrow its discounted valuation</li>
</ul>



Guararapes Confeccoes SA (GUAR3 BZ), is a top three competitor to Brazilian market leader Lojas Renner SA (LREN3 BZ) in apparel retail
Its consumer credit book, including credit card loan exposure, of BRL4.1bn (USD1.1bn) is held by Guararapes’ 100% owned corporate vehicle for consumer credit, Midway Financiera. Midway  has delivered premium ROAE over 2015-18, and, although its NPL coverage is lower than Renner's, it has a very solid capital position
We apply a bear (9x) and bull (16x) range of historic (2018A) PE multiples for its consumer finance arm Midway Financiera. We estimate that this values Guararapes’ consumer credit businesses in a range of USD500-889m, equivalent to a range of 22%-38% of Guararapes' market capitalisation
We believe that Guararapes equity is an attractive investment, trading on consensus PE multiples of 15.6x for 2019E and 12.8x for 2020E, and EV/EBITDA multiples of 8.2x for 2019E and 7.1x for 2020E. Although we recognise that Guararapes should trade at a discount to Renner, we believe that Guararapes has potential to re-rate and narrow its discounted valuation


Guararapes: Good Value in Brazil Retailing, Sound Presence in Consumer Finance

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<ul>
<li>A rising pro-market tide has lifted the big-cap banks, but now it is time to be more selective. We see further potential for stock re-rating among the Brazilian banks, as the new Bolosonaro administration executes its pro-market policies.</li>
<li>Our top pick is <a href="https://www.smartkarma.com/entities/24564" target="_blank">Banco Do Brasil Sa (BdoBAS3 BZ)</a> , with a target price of BRL57, which implies 19% re-rating potential. We believe that Banco do Brasil (BdoB) shareholders are set to benefit from less of a “social programme” agenda which in turn should help improve ROE going forward.</li>
<li>Yet the PBV discount between BdoB and its private sector peers - especially against Itaú Unibanco at 52% - has barely narrowed, and we believe that the discount has potential to narrow further as BdoB’s ROE expands and narrows the gap with its private sector peers.</li>
</ul>


A rising pro-market tide has lifted the big-cap banks, but now it is time to be more selective. We see further potential for stock re-rating among the Brazilian banks, as the new Bolosonaro administration executes its pro-market policies.
Our top pick is Banco Do Brasil Sa (BdoBAS3 BZ) , with a target price of BRL57, which implies 19% re-rating potential. We believe that Banco do Brasil (BdoB) shareholders are set to benefit from less of a “social programme” agenda which in turn should help improve ROE going forward.
Yet the PBV discount between BdoB and its private sector peers - especially against Itaú Unibanco at 52% - has barely narrowed, and we believe that the discount has potential to narrow further as BdoB’s ROE expands and narrows the gap with its private sector peers.


Brazil Banks: Banco Do Brasil Focus - Prospects for Improved Returns, Narrowing PBV Discount

Brazil

Banco Bradesco S.A. is a Brazilian financial services company that provides a wide range of banking products and services, including retail banking, investment banking, asset management, and specialized financial services. It also offers various insurance products such as life, health, and non-life insurance, along with pension plans. The company was founded in 1943 and is headquartered in Osasco, Brazil.

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Banco Bradesco (BBDC4 BR)

Guararapes: Good Value in Brazil Retailing, Sound Presence in Consumer Finance

Guararapes Confeccoes SA (GUAR3 BZ), is a top three competitor to Brazilian market leader Lojas Renner SA (LREN3 BZ) in apparel retail Its...

Victor Galliano

Brazil Banks: Banco Do Brasil Focus - Prospects for Improved Returns, Narrowing PBV Discount

A rising pro-market tide has lifted the big-cap banks, but now it is time to be more selective. We see further potential for stock re-rating among...

Boost Research

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52-week Range

Market Cap (USDm)

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