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>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

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Our bullish outlook continues to be supported by ongoing positive market dynamics and the absence of breakdowns for major indexes around the globe. The path of least resistance remains higher and we continue to believe a melt-up is likely in the weeks/months ahead. The global Technology, Discretionary, and Manufacturing Sectors remain leadership -- add exposure/remain overweight. The Financial Sector has been playing catch-up and continues to show signs of price and RS bottoms as expectations rise for a global recovery -- add exposure.

Our bullish outlook continues to be supported by ongoing positive market dynamics and the absence of breakdowns for major indexes around the globe. The path of least resistance remains higher and we continue to believe a melt-up is likely in the weeks/months ahead. The global Technology, Discretionary, and Manufacturing Sectors remain leadership -- add exposure/remain overweight. The Financial Sector has been playing catch-up and continues to show signs of price and RS bottoms as expectations rise for a global recovery -- add exposure.

Global Equity Strategy: Santa Claus Rally Underway

Positive COVID vaccine news has since led to bullish inflections in a staggering number of countries, ACWI-US included. Our current outlook is bullish. Buy dips. In this report we outline key technical levels across markets and highlight actionable ideas within our Financials &amp; Energy Sectors.

Positive COVID vaccine news has since led to bullish inflections in a staggering number of countries, ACWI-US included. Our current outlook is bullish. Buy dips. In this report we outline key technical levels across markets and highlight actionable ideas within our Financials &amp; Energy Sectors.

<ul><li>The Covid-19 pandemic is driving customer to change behaviour, and is accelerating and deepening the shift to digital banking and financial services, which presents hurdles for incumbents and mainly opportunities for FinTechs</li></ul><ul><li>
<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>  is our preferred name on growth potential, solidity of capital base and steady customer growth; it offers premium growth prospects and trades on an attractive PEG</li></ul><ul><li>In the Brazil digital banking space, the leader, Nubank, remains privately owned, and it does not yet appear to have IPO plans</li></ul><ul><li>
<a href="https://www.smartkarma.com/entities/banco-pan-sa" target="_blank" data-smartkarma-citation="entities:28163:1" rel="noopener">Banco Pan SA (BPAN4 BZ)</a> is one to watch in the low-income space; it is transitioning from a low-income focused traditional to digital bank</li></ul><ul><li>These digital banks, along with the central bank promoting regulatory change, are driving the big Brazil banks onto the defensive; they will need to address opex more immediately to limit the erosion of their revenues and ultimately returns</li></ul><ul><li>The incumbents’ drive to lower opex is challenged by the need to continue to invest in and spend on their digital transformation, as well as the need to accelerate IT spend to account for consumer habits becoming increasingly digital under Covid-19</li></ul><ul><li>Risks to our positive view on <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> and digital bank opportunities include incumbent bank client inertia, high customer acquisition costs for digital banks and slow cross-sales growth as well as higher than expected cost of risk for digital banks</li></ul>

The Covid-19 pandemic is driving customer to change behaviour, and is accelerating and deepening the shift to digital banking and financial services, which presents hurdles for incumbents and mainly opportunities for FinTechs
Banco Inter SA (BIDI11 BZ)  is our preferred name on growth potential, solidity of capital base and steady customer growth; it offers premium growth prospects and trades on an attractive PEGIn the Brazil digital banking space, the leader, Nubank, remains privately owned, and it does not yet appear to have IPO plans
Banco Pan SA (BPAN4 BZ) is one to watch in the low-income space; it is transitioning from a low-income focused traditional to digital bankThese digital banks, along with the central bank promoting regulatory change, are driving the big Brazil banks onto the defensive; they will need to address opex more immediately to limit the erosion of their revenues and ultimately returnsThe incumbents’ drive to lower opex is challenged by the need to continue to invest in and spend on their digital transformation, as well as the need to accelerate IT spend to account for consumer habits becoming increasingly digital under Covid-19Risks to our positive view on Banco Inter SA (BIDI11 BZ) and digital bank opportunities include incumbent bank client inertia, high customer acquisition costs for digital banks and slow cross-sales growth as well as higher than expected cost of risk for digital banks

Brazil Digital Banking: Client Behaviour Changes Driving Growth, with Regulatory Catalysts

<ul>
<li>We believe Banco Inter’s recent share price correction reflects the increasing competition in Brazil digital banking</li>
<li>The big major challenger is clearly Nubank, but smaller domestic players and payment FinTechs are also offering banking services</li>
<li>The domestic incumbents are fighting back, as in the case of Bradesco’s Next, but there is also increasing evidence of fee pressure - especially in credit cards and, to some degree, in asset management - on the incumbents’ business models</li>
<li>In this report, which follows on from our <a href="https://www.smartkarma.com/insights/primer-on-brazilian-digital-banking-disrupters-adapters" target="_blank" data-smartkarma-citation="insights:30983" rel="noopener">Primer on Brazilian Digital Banking – Disrupters &amp; Adapters</a> , we look at traditional valuations of the listed players, as well as applying a basic non-traditional valuation metric to listed and unlisted FinTechs</li>
<li>We recommend <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>  in digital banking, based on its attractive PEG ratio, and we also continue to see value in “legacy” bank <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>; <a href="https://www.smartkarma.com/entities/banco-pan-sa" target="_blank" data-smartkarma-citation="entities:28163:1" rel="noopener">Banco Pan SA (BPAN4 BZ)</a> is rightly focused on low income digital banking but its market value is optimistically - in our view - anticipating a 2020 “roll-out" without challenges</li>
<li>Risks for Banco Inter include a lower-than-expected digital client additions, and an increase in customer acquisition costs as well as a higher than expected delinquency ratio leading to an increased cost of risk; for Banco do Brasil, risks include slower-than-expected organic capital generation potentially due to deficit on pension liabilities</li>
</ul>


We believe Banco Inter’s recent share price correction reflects the increasing competition in Brazil digital banking
The big major challenger is clearly Nubank, but smaller domestic players and payment FinTechs are also offering banking services
The domestic incumbents are fighting back, as in the case of Bradesco’s Next, but there is also increasing evidence of fee pressure - especially in credit cards and, to some degree, in asset management - on the incumbents’ business models
In this report, which follows on from our Primer on Brazilian Digital Banking – Disrupters &amp; Adapters , we look at traditional valuations of the listed players, as well as applying a basic non-traditional valuation metric to listed and unlisted FinTechs
We recommend Banco Inter SA (BIDI11 BZ)  in digital banking, based on its attractive PEG ratio, and we also continue to see value in “legacy” bank Banco Do Brasil Sa (BBAS3 BZ); Banco Pan SA (BPAN4 BZ) is rightly focused on low income digital banking but its market value is optimistically - in our view - anticipating a 2020 “roll-out" without challenges
Risks for Banco Inter include a lower-than-expected digital client additions, and an increase in customer acquisition costs as well as a higher than expected delinquency ratio leading to an increased cost of risk; for Banco do Brasil, risks include slower-than-expected organic capital generation potentially due to deficit on pension liabilities


Brazil Digital Banking – A Highly Competitive Market, but One with Opportunities

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)

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

Global Equity Strategy: Santa Claus Rally Underway

Our bullish outlook continues to be supported by ongoing positive market dynamics and the absence of breakdowns across indexes, and we continue to...

Vermilion Research

Bullish Inflections Around The World

In this report we outline key technical levels across markets and highlight actionable ideas within our Financials & Energy Sectors.

Vermilion Research

Brazil Digital Banking: Client Behaviour Changes Driving Growth, with Regulatory Catalysts

The Covid-19 pandemic is driving customer to change behaviour, and is accelerating and deepening the shift to digital banking and financial...

Victor Galliano

Brazil Digital Banking – A Highly Competitive Market, but One with Opportunities

We believe Banco Inter’s recent share price correction reflects the increasing competition in Brazil digital banking The big major challenger is...

Victor Galliano

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