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>Despite the compression in the Brazil digital banks’ multiples from the FinTech de-rating, big fundamental hurdles remain, especially for Nubank</li>
<li>Nubank is delivering on increased loan penetration and this should drive revenue growth; still, this also drives higher and front loaded provisioning charges along with capital absorption</li>
<li>Banco Inter is less challenged than Nubank on most metrics, and it is modestly profitable, but we believe it is too early to turn positive; we like Banco do Brasil</li>
</ul>


Despite the compression in the Brazil digital banks’ multiples from the FinTech de-rating, big fundamental hurdles remain, especially for Nubank
Nubank is delivering on increased loan penetration and this should drive revenue growth; still, this also drives higher and front loaded provisioning charges along with capital absorption
Banco Inter is less challenged than Nubank on most metrics, and it is modestly profitable, but we believe it is too early to turn positive; we like Banco do Brasil


Brazil Digital Banks – Nubank and Banco Inter Shares Have De-Rated, but Still Face Challenges

<ul>
<li>Brazil’s consumer credit quality trends to February deteriorated further relative to the previous month, despite corporate credit quality improving marginally</li>
<li>System loan growth was 16.6% for the twelve months to February which was slightly faster than the YoY rate for January (16.4%), totally due to the stronger consumer loan growth</li>
<li>The BCB is in the latter stages of its benchmark rate hiking cycle, which impacts credit quality, especially in consumer categories; still, Brazilian banks should benefit from higher loan spreads</li>
</ul>


Brazil’s consumer credit quality trends to February deteriorated further relative to the previous month, despite corporate credit quality improving marginally
System loan growth was 16.6% for the twelve months to February which was slightly faster than the YoY rate for January (16.4%), totally due to the stronger consumer loan growth
The BCB is in the latter stages of its benchmark rate hiking cycle, which impacts credit quality, especially in consumer categories; still, Brazilian banks should benefit from higher loan spreads


Brazil Banking Data to February in 12 Charts – Consumer NPLs Worsened Further Pushed by Higher Rates

<ul>
<li>Banco do Brasil is the clear value pick among LatAm banks, with sound credit quality and capital metrics as well as positive asset sensitivity on a delayed basis</li>
<li>Itaú Unibanco is the most asset sensitive of the Brazilian banks, with its large consumer exposure, and it shows positive trends in terms of asset quality</li>
<li>Santander Brasil has greater credit quality headwinds than peers and is the least asset sensitive of the big four peers, with Bradesco’s positive asset sensitivity repricing more slowly</li>
</ul>


Banco do Brasil is the clear value pick among LatAm banks, with sound credit quality and capital metrics as well as positive asset sensitivity on a delayed basis
Itaú Unibanco is the most asset sensitive of the Brazilian banks, with its large consumer exposure, and it shows positive trends in terms of asset quality
Santander Brasil has greater credit quality headwinds than peers and is the least asset sensitive of the big four peers, with Bradesco’s positive asset sensitivity repricing more slowly


Brazil Banks: Our Picks on Asset Sensitivity and Credit Quality Are Itaú Unibanco & Banco Do Brasil

<ul>
<li>The prospect of Russia being excluded from key emerging market indices is very real, in our view, and here we focus on the iShares MSCI Emerging Markets ETF</li>
<li>The main beneficiaries of an index re-balancing would be the dominant EM Asian economies, and select African economies, but we cannot disregard LatAm and in particular we concentrate on financials</li>
<li>Largest weightings aside, we highlight our preferred LatAm financial names based on fundamentals; Banco do Brasil, B3, BanColombia and Banco del Bajio, we also remove Banorte from the sell list</li>
</ul>


The prospect of Russia being excluded from key emerging market indices is very real, in our view, and here we focus on the iShares MSCI Emerging Markets ETF
The main beneficiaries of an index re-balancing would be the dominant EM Asian economies, and select African economies, but we cannot disregard LatAm and in particular we concentrate on financials
Largest weightings aside, we highlight our preferred LatAm financial names based on fundamentals; Banco do Brasil, B3, BanColombia and Banco del Bajio, we also remove Banorte from the sell list


EM Banks and Financials – The Rebalancing in Index Weightings from the LatAm Perspective

<ul>
<li>Brazil’s consumer credit quality trends to January deteriorated relative to the previous month, with corporate credit quality worsening only slightly </li>
<li>System loan growth was 16.4% for the twelve months to January which was very similar to the YoY rate for December (16.3%), totally due to the faster consumer loan growth </li>
<li>The BCB is in the latter stages of the benchmark rate hiking cycle, which is impacting credit quality, especially in consumer categories; nonetheless, Brazilian banks benefit from higher loan spreads</li>
</ul>


Brazil’s consumer credit quality trends to January deteriorated relative to the previous month, with corporate credit quality worsening only slightly 
System loan growth was 16.4% for the twelve months to January which was very similar to the YoY rate for December (16.3%), totally due to the faster consumer loan growth 
The BCB is in the latter stages of the benchmark rate hiking cycle, which is impacting credit quality, especially in consumer categories; nonetheless, Brazilian banks benefit from higher loan spreads


Brazil Banking Data to January-End in Twelve Charts – Consumer NPLs Reflect Higher Benchmark Rates

Brazil

Banco do Brasil is a Brazilian financial services company offering a wide range of banking products and services, including retail and corporate banking, investment management, insurance, and agribusiness loans. It serves individuals, companies, and the public sector, with a strong leadership position in retail banking in Brazil. The company is headquartered in Brasília, Brazil, and was founded on October 12, 1808.

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Banco do Brasil (BBAS3 BR)

Brazil Digital Banks – Nubank and Banco Inter Shares Have De-Rated, but Still Face Challenges

The Brazil digital banks' high loan penetration should drive revenue growth, but this also accelerates NPL formation, provisioning charges and...

Victor Galliano

Brazil Banking Data to February in 12 Charts – Consumer NPLs Worsened Further Pushed by Higher Rates

Consumer NPLs worsened again in February, whilst corporate NPLs were broadly flat; yet Brazil banks should benefit from the BCB's hiking cycle of...

Victor Galliano

Brazil Banks: Our Picks on Asset Sensitivity and Credit Quality Are Itaú Unibanco & Banco Do Brasil

Itaú Unibanco, the most asset sensitive big-cap Brazil bank, benefits from the BCB's recent monetary tightening, with Banco do Brasil & its sound...

Victor Galliano

EM Banks and Financials – The Rebalancing in Index Weightings from the LatAm Perspective

Potential Russian shares exclusion from indices is real, with Asian EMs set to gain big, but do not disregard LatAm; our preferred financials are...

Victor Galliano

Brazil Banking Data to January-End in Twelve Charts – Consumer NPLs Reflect Higher Benchmark Rates

January Brazil banks data showed a worsening consumer NPL ratio, which is impacted by the sharp interest rate rise, with the sector's offset to...

Victor Galliano

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52-week Range

Market Cap (USDm)

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