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

Grupo Financiero Banorte SAB d / Equity Bottom-Up

<ul>
<li>Banorte delivered a strong close to 2023, with ROE of close to 22% for the group, efficiency ratio of under 40%, healthy core capital adequacy and a low delinquency ratio</li>
<li>There were few amber warnings in the 4Q 2023 figures, with the exception of non-interest costs, especially those relating to IT and digital banking capex, and slightly on funding costs</li>
<li>Management’s 2024 guidance is, in our view, optimistic; we see potential erosion of the net interest margin, structurally higher opex – due mainly to digital competition – and worsening delinquency</li>
</ul>


Banorte delivered a strong close to 2023, with ROE of close to 22% for the group, efficiency ratio of under 40%, healthy core capital adequacy and a low delinquency ratio
There were few amber warnings in the 4Q 2023 figures, with the exception of non-interest costs, especially those relating to IT and digital banking capex, and slightly on funding costs
Management’s 2024 guidance is, in our view, optimistic; we see potential erosion of the net interest margin, structurally higher opex – due mainly to digital competition – and worsening delinquency


Banorte (GFNORTEO MM) – Triple Jeopardy in Play for 2024?

<ul>
<li>We review Citibank’s upcoming division of CitiBanamex and the forthcoming legacy Banamex IPO; given the market’s recent wobbles, we shave down the Banamex IPO valuation</li>
<li>Sector trends to January show continued loan growth; although funding costs have not risen to April, credit costs are worsening, with some evidence of rising NPL ratios</li>
<li>BanBajio generates an ROE of 27%, whilst well capitalized and on very modest multiples; we are now neutral on Banorte, from being cautious, due to its less demanding valuation</li>
</ul>


We review Citibank’s upcoming division of CitiBanamex and the forthcoming legacy Banamex IPO; given the market’s recent wobbles, we shave down the Banamex IPO valuation
Sector trends to January show continued loan growth; although funding costs have not risen to April, credit costs are worsening, with some evidence of rising NPL ratios
BanBajio generates an ROE of 27%, whilst well capitalized and on very modest multiples; we are now neutral on Banorte, from being cautious, due to its less demanding valuation


Banamex Update and Mexican Banks’ April Data – First Look at Early 2Q 2024 Trends

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<ul>
<li>Mexico has seen increased inflows and exposure over the past 3-4 years, with funds invested reaching an all-time high of 94.6% and average holding weights climbing to 3.93%.</li>
<li>The percentage of active EM funds overweight the benchmark rose from 20% in 2011 to over 69% last month, making Mexico the largest overweight compared country peers.</li>
<li>Grupo Financiero Banorte and Wal-Mart de Mexico are key contributors to the net Mexican overweight, with Banorte seeing increased exposure of +4.26% of funds in the last 6 months</li>
</ul>


Mexico has seen increased inflows and exposure over the past 3-4 years, with funds invested reaching an all-time high of 94.6% and average holding weights climbing to 3.93%.
The percentage of active EM funds overweight the benchmark rose from 20% in 2011 to over 69% last month, making Mexico the largest overweight compared country peers.
Grupo Financiero Banorte and Wal-Mart de Mexico are key contributors to the net Mexican overweight, with Banorte seeing increased exposure of +4.26% of funds in the last 6 months


Mexico: GEM Funds Wrong-Footed After Election Results.

<ul>
<li>We explore Citibank’s upcoming division of CitiBanamex and the forthcoming legacy Banamex IPO; given the market’s premium PBV ratios, this should support the Banamex IPO valuation</li>
<li>Sector trends to January show continued loan growth, but headwinds are building; rising funding costs are eroding credit spreads and credit costs are worsening, even though NPL coverage is healthy</li>
<li>BanBajio generates an ROE of 28%+, whilst highly capitalized and on more modest multiples than Banorte; we stay cautious on Banorte, due to the growing risks to returns and valuation</li>
</ul>


We explore Citibank’s upcoming division of CitiBanamex and the forthcoming legacy Banamex IPO; given the market’s premium PBV ratios, this should support the Banamex IPO valuation
Sector trends to January show continued loan growth, but headwinds are building; rising funding costs are eroding credit spreads and credit costs are worsening, even though NPL coverage is healthy
BanBajio generates an ROE of 28%+, whilst highly capitalized and on more modest multiples than Banorte; we stay cautious on Banorte, due to the growing risks to returns and valuation


Banamex Update and Mexican Banks’ January Data – First Look at Early 1Q 2024 Trends

<ul>
<li>Management’s successful execution to 4Q23 has driven its LTM ROE of 18%+ and ROA of 2.6%; in Brazil, the focus is to grow secured lending and further penetrate high-income retail</li>
<li>In Mexico, management aims to leverage off the deposit base and build its credit business, as well as establishing itself in Colombia; challenges include containing capital consumption and credit delinquency</li>
<li>In Mexico especially, the competitive climate in digital banking is intensifying which puts pressure on customer acquisition costs, costs to serve, and it could drive up credit delinquency risks</li>
</ul>


Management’s successful execution to 4Q23 has driven its LTM ROE of 18%+ and ROA of 2.6%; in Brazil, the focus is to grow secured lending and further penetrate high-income retail
In Mexico, management aims to leverage off the deposit base and build its credit business, as well as establishing itself in Colombia; challenges include containing capital consumption and credit delinquency
In Mexico especially, the competitive climate in digital banking is intensifying which puts pressure on customer acquisition costs, costs to serve, and it could drive up credit delinquency risks


Mexico

Grupo Financiero Banorte S.A.B. de C.V. is a financial institution in Mexico. The Company offers banking services, premium banking, wholesale banking, leasing and factoring, warehousing, insurance, pensions and retirement savings.

Grupo Financiero Banorte SAB d (GFNORTEO MF)

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Grupo Financiero Banorte SAB d (GFNORTEO MF)

Banorte (GFNORTEO MM) – Triple Jeopardy in Play for 2024?

Banorte had a strong end to 2023, but there are 2024 concerns about potential erosion of net interest margin, structurally higher opex – due...

Victor Galliano

Banamex Update and Mexican Banks’ April Data – First Look at Early 2Q 2024 Trends

Citibank's Banamex faces lower IPO valuation amid market uncertainty; sector trends show loan growth, but rising credit costs. BanBajio shines...

Victor Galliano

Mexico: GEM Funds Wrong-Footed After Election Results.

Pre-election bullishness towards Mexico was at it's highest ever levels in the run up to the election. Managers must now assess whether the new...

Steven Holden

Banamex Update and Mexican Banks’ January Data – First Look at Early 1Q 2024 Trends

Sector trends show headwinds credit costs and maybe opex. BanBajio's strong ROE, high capital ratio and modest valuations make it a more attractive...

Victor Galliano

Nubank (NU US): The Challenges for 2024

Nubank Brazil's focus is growing secured lending and high-income retail, while Nu Mexico aims to build the credit book; hurdles include containing...

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Banorte (GFNORTEO MM) – Triple Jeopardy in Play for 2024?

​Banorte had a strong end to 2023, but there are 2024 concerns about potential erosion of net interest margin, structurally higher opex – due...

Victor Galliano

Banamex Update and Mexican Banks’ April Data – First Look at Early 2Q 2024 Trends

​Citibank's Banamex faces lower IPO valuation amid market uncertainty; sector trends show loan growth, but rising credit costs. BanBajio shines...

Victor Galliano

Mexico: GEM Funds Wrong-Footed After Election Results.

Pre-election bullishness towards Mexico was at it's highest ever levels in the run up to the election. Managers must now assess whether the new...

Steven Holden

Banamex Update and Mexican Banks’ January Data – First Look at Early 1Q 2024 Trends

Sector trends show headwinds credit costs and maybe opex. BanBajio's strong ROE, high capital ratio and modest valuations make it a more attractive...

Victor Galliano

Nubank (NU US): The Challenges for 2024

Nubank Brazil's focus is growing secured lending and high-income retail, while Nu Mexico aims to build the credit book; hurdles include containing...

Victor Galliano

Banorte had a strong end to 2023, but there are 2024 concerns about potential erosion of net interest margin, structurally higher opex – due...

Citibank's Banamex faces lower IPO valuation amid market uncertainty; sector trends show loan growth, but rising credit costs. BanBajio shines...