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>General Atlantic and XP Controle Participacoes have announced that they will be selling down their stakes in a secondary offering, now that lock-up has expired</li>
<li>This amounts to a maximum offer of 22.46m shares, equivalent to 4.1% of total shares in issue, and potentially increasing free float from just under 15% to 19%</li>
<li>The offer also explains why XP “pre-announced” 2Q20 results ahead of the quarter closing, to highlight its continued premium growth in revenue and profitability to potential new investors</li>
<li>We recognise that XP management is executing well in its core business of digital investment asset and retail wealth management, and that it is also growing through targeted and focused acquisitions</li>
<li>Nonetheless, we believe that current valuations more than discount the positive prospects, and, although the shares have started to correct, we see the secondary offer announcement adding to the share price’s downside risk</li>
<li>In terms of fundamental valuation, XP trades at a significant premium to international brokers and investment platforms, as well as other Brazilian FinTechs, as we show in this report</li>
<li>Risks to our view include XP scarcity value among Brazil listed FinTechs and its long run growth potential continuing to support its premium valuation</li>
</ul>


General Atlantic and XP Controle Participacoes have announced that they will be selling down their stakes in a secondary offering, now that lock-up has expired
This amounts to a maximum offer of 22.46m shares, equivalent to 4.1% of total shares in issue, and potentially increasing free float from just under 15% to 19%
The offer also explains why XP “pre-announced” 2Q20 results ahead of the quarter closing, to highlight its continued premium growth in revenue and profitability to potential new investors
We recognise that XP management is executing well in its core business of digital investment asset and retail wealth management, and that it is also growing through targeted and focused acquisitions
Nonetheless, we believe that current valuations more than discount the positive prospects, and, although the shares have started to correct, we see the secondary offer announcement adding to the share price’s downside risk
In terms of fundamental valuation, XP trades at a significant premium to international brokers and investment platforms, as well as other Brazilian FinTechs, as we show in this report
Risks to our view include XP scarcity value among Brazil listed FinTechs and its long run growth potential continuing to support its premium valuation


XP Inc (NasdaqGS:XP): Secondary Offer and Valuation Are Catalysts for Share Price Correction

Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/xp-inc" target="_blank" data-smartkarma-citation="entities:28619:1" rel="noopener">XP Inc (XP US)</a> management has announced its IPO on Nasdaq which is set to price this week, making it the largest Brazilian corporate IPO in 2019 with proceeds of upto USD2.1bn</li>
<li>As the leading independent investment and brokerage firm in Brazil, with its digital and multi-channel distribution, XP is disrupting the marketplace and taking share from the traditional players, the large cap domestic banks</li>
<li>Despite a 2014-18A CAGR in assets under custody (AUC) of 92%, it has more growth potential, and it is benefiting from low benchmark rates in Brazil, with retail investors switching to investment funds, bonds and shares</li>
<li>Still, a key issue going forward will be the pressure on retail client fees, given the intense competition from the bank incumbents as well as other independents</li>
<li>Partly to counter this, management will need to execute very effectively going forward, especially on costs, in order to deliver the premium growth to justify XP's premium IPO valuation</li>
<li>Our core initial valuation scenario suggests that, at the mid point of the price range,  XP is attractive on 2018-22E EVG of under 0.5x, and a 2018-22E PEG of under 0.75x</li>
<li>Risks to our positive thesis on XP include greater-than-expected pressure on retail investment fees, from both incumbents and other disruptors, as well as worse-than-expected execution on opex and at the macro-level there is the risk of a spike in benchmark interest rates</li>
</ul>



XP Inc (XP US) management has announced its IPO on Nasdaq which is set to price this week, making it the largest Brazilian corporate IPO in 2019 with proceeds of upto USD2.1bn
As the leading independent investment and brokerage firm in Brazil, with its digital and multi-channel distribution, XP is disrupting the marketplace and taking share from the traditional players, the large cap domestic banks
Despite a 2014-18A CAGR in assets under custody (AUC) of 92%, it has more growth potential, and it is benefiting from low benchmark rates in Brazil, with retail investors switching to investment funds, bonds and shares
Still, a key issue going forward will be the pressure on retail client fees, given the intense competition from the bank incumbents as well as other independents
Partly to counter this, management will need to execute very effectively going forward, especially on costs, in order to deliver the premium growth to justify XP's premium IPO valuation
Our core initial valuation scenario suggests that, at the mid point of the price range,  XP is attractive on 2018-22E EVG of under 0.5x, and a 2018-22E PEG of under 0.75x
Risks to our positive thesis on XP include greater-than-expected pressure on retail investment fees, from both incumbents and other disruptors, as well as worse-than-expected execution on opex and at the macro-level there is the risk of a spike in benchmark interest rates


XP Inc (XP US): This Brazil Fintech's Growth Potential Warrants the Premium IPO Valuation

Brazil

Banco BTG Pactual S/A. provides financial services. The Company offers asset and wealth management, investment banking, trading, corporate lending, sales, and other related solutions. Banco BTG Pactual serves customers in Brazil.

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52-week Range	0.00 - 0.00
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Banco BTG Pactual (BPAC11 BZ)

XP Inc (XP US): This Brazil Fintech's Growth Potential Warrants the Premium IPO Valuation

XP Inc (XP US) management has announced its IPO on Nasdaq which is set to price this week, making it the largest Brazilian corporate IPO in 2019...

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

XP Inc (NasdaqGS:XP): Secondary Offer and Valuation Are Catalysts for Share Price Correction

General Atlantic and XP Controle Participacoes have announced that they will be selling down their stakes in a secondary offering, now that...

Victor Galliano

XP Inc (XP US): This Brazil Fintech's Growth Potential Warrants the Premium IPO Valuation

XP Inc (XP US) management has announced its IPO on Nasdaq which is set to price this week, making it the largest Brazilian corporate IPO in 2019...

Victor Galliano