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>We screen 35 GEM Banks in this report with its accompanying charts, and identify the following names as investment opportunities</li>
<li>In LatAm, we highlight <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/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MF)</a> and <a href="https://www.smartkarma.com/entities/credicorp-ltd" target="_blank" data-smartkarma-citation="entities:25963:1" rel="noopener">Credicorp Ltd (BAP US)</a> </li>
<li>In Asia, our preferred stocks are <a href="https://www.smartkarma.com/entities/postal-savings-bank-of-china" target="_blank" data-smartkarma-citation="entities:22848:1" rel="noopener">Postal Savings Bank of China (1658 HK)</a> , <a href="https://www.smartkarma.com/entities/china-construction-bank-h" target="_blank" data-smartkarma-citation="entities:45:1" rel="noopener">China Construction Bank H (939 HK)</a> , <a href="https://www.smartkarma.com/entities/hana-financial-group" target="_blank" data-smartkarma-citation="entities:12843:1" rel="noopener">Hana Financial (086790 KS)</a> and <a href="https://www.smartkarma.com/entities/state-bank-of-india" target="_blank" data-smartkarma-citation="entities:160:1" rel="noopener">State Bank Of India (SBIN IN)</a> </li>
<li>
<a href="https://www.smartkarma.com/entities/commercial-international-bank" target="_blank" data-smartkarma-citation="entities:27625:1" rel="noopener">Commercial International Bank (COMI EY)</a> and <a href="https://www.smartkarma.com/entities/sberbank-of-russia-pjsc-cde59529-fb78-4659-85d0-127942b44ba7" target="_blank" data-smartkarma-citation="entities:27581:1" rel="noopener">Sberbank of Russia PJSC (SBER RM)</a> stand out in CEMEA</li>
<li>Risks to our positive view on these select GEM banks include worse than expected GDP growth leading to worse than anticipated credit quality and slower than expected loan growth, along with limited investor appetite for GEM banks</li>
</ul>


We screen 35 GEM Banks in this report with its accompanying charts, and identify the following names as investment opportunities
In LatAm, we highlight Banco Do Brasil Sa (BBAS3 BZ) , Grupo Financiero Banorte-O (GFNORTEO MF) and Credicorp Ltd (BAP US) 
In Asia, our preferred stocks are Postal Savings Bank of China (1658 HK) , China Construction Bank H (939 HK) , Hana Financial (086790 KS) and State Bank Of India (SBIN IN) 

Commercial International Bank (COMI EY) and Sberbank of Russia PJSC (SBER RM) stand out in CEMEA
Risks to our positive view on these select GEM banks include worse than expected GDP growth leading to worse than anticipated credit quality and slower than expected loan growth, along with limited investor appetite for GEM banks


Grupo Financiero Banorte SAB d / Equity Bottom-Up

Grupo Financiero Banorte SAB d (GFNORTEO MF)

<ul>
<li>The politics in Mexico is not a major concern, and the macro-economic outlook remains constructive</li>
<li>We continue to recommend <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> , seeing it as a core holding in EM portfolios</li>
<li>
<a href="https://www.smartkarma.com/entities/banco-del-bajio-sa" target="_blank" data-smartkarma-citation="entities:28382:1" rel="noopener">Banco del Bajio SA (BBAJIOO MM)</a> is also attractive, as a mid-cap holding and it has potential for a further re-rating</li>
<li>
<a href="https://www.smartkarma.com/entities/banco-santander-mexico-s-a" target="_blank" data-smartkarma-citation="entities:27672:1" rel="noopener">Banco Santander Mexico-B (BSMXB MM)</a> shares are trading at an 6% premium to the share offer from the parent (MXN24.45 cum dividend); even factoring in the dividend yield, the potential for further SanMex share price upside seems limited</li>
<li>Risks to our positive view on Banorte, BanBajio include worse than expected credit quality and softer than expected loan demand impacting volumes and spreads; risks to our cautious view on SanMex shares include an enhanced offer by Santander or an increased dividend attributable to current shareholders</li>
</ul>


The politics in Mexico is not a major concern, and the macro-economic outlook remains constructive
We continue to recommend Grupo Financiero Banorte-O (GFNORTEO MF) , seeing it as a core holding in EM portfolios

Banco del Bajio SA (BBAJIOO MM) is also attractive, as a mid-cap holding and it has potential for a further re-rating

Banco Santander Mexico-B (BSMXB MM) shares are trading at an 6% premium to the share offer from the parent (MXN24.45 cum dividend); even factoring in the dividend yield, the potential for further SanMex share price upside seems limited
Risks to our positive view on Banorte, BanBajio include worse than expected credit quality and softer than expected loan demand impacting volumes and spreads; risks to our cautious view on SanMex shares include an enhanced offer by Santander or an increased dividend attributable to current shareholders


Mexican Banks: Stay the Course with Our Two Key Positive Picks, Cautious on SanMex

<ul>
<li>BBVA Bancomer delivered the best returns of the biggest five Mexican banks, on a trailing twelve months basis to April; <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>  was second with mid-teens ROE</li>
<li>The rising bad loan charge offs show that Mexican banks continue to be proactive in addressing credit quality risks</li>
<li>To April 2021, bank system returns continued to recover from historically low levels; in large part, future returns depends upon the direction of cost of risk and efficiency ratio</li>
<li>Returns have been supported by limited erosion of credit spreads; spreads ticked up in April due to lower funding costs</li>
<li>Banorte and <a href="https://www.smartkarma.com/entities/banco-del-bajio-sa" target="_blank" data-smartkarma-citation="entities:28382:1" rel="noopener">Banco del Bajio SA (BBAJIOO MM)</a>  screen well on credit quality metrics, particularly on NPL coverage and ratio; they both also have higher than average core capital ratios</li>
<li>Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure and a further worsening of credit quality resulting in higher credit charges</li>
</ul>


BBVA Bancomer delivered the best returns of the biggest five Mexican banks, on a trailing twelve months basis to April; Grupo Financiero Banorte-O (GFNORTEO MF)  was second with mid-teens ROE
The rising bad loan charge offs show that Mexican banks continue to be proactive in addressing credit quality risks
To April 2021, bank system returns continued to recover from historically low levels; in large part, future returns depends upon the direction of cost of risk and efficiency ratio
Returns have been supported by limited erosion of credit spreads; spreads ticked up in April due to lower funding costs
Banorte and Banco del Bajio SA (BBAJIOO MM)  screen well on credit quality metrics, particularly on NPL coverage and ratio; they both also have higher than average core capital ratios
Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure and a further worsening of credit quality resulting in higher credit charges


<ul>
<li>BBVA Bancomer delivered the best returns of the biggest five Mexican banks, on a trailing twelve months basis; <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> was a close second</li>
<li>Mexican banks have generally been proactive in addressing credit quality risks, through cost of risk and bad loan charge offs</li>
<li>To March 2021, bank system returns have started to recover from historically low levels; in part, future returns depends upon the direction of cost of risk and efficiency ratio</li>
<li>Returns have been supported by limited erosion of credit spreads, despite historically low benchmark rates</li>
<li>Banorte and <a href="https://www.smartkarma.com/entities/banco-del-bajio-sa" target="_blank" data-smartkarma-citation="entities:28382:1" rel="noopener">Banco del Bajio SA (BBAJIOO MM)</a> screen well on credit quality metrics, particularly on NPL coverage and ratio</li>
<li>Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure and a further worsening of credit quality resulting in higher credit charges</li>
</ul>


BBVA Bancomer delivered the best returns of the biggest five Mexican banks, on a trailing twelve months basis; Grupo Financiero Banorte-O (GFNORTEO MF) was a close second
Mexican banks have generally been proactive in addressing credit quality risks, through cost of risk and bad loan charge offs
To March 2021, bank system returns have started to recover from historically low levels; in part, future returns depends upon the direction of cost of risk and efficiency ratio
Returns have been supported by limited erosion of credit spreads, despite historically low benchmark rates
Banorte and Banco del Bajio SA (BBAJIOO MM) screen well on credit quality metrics, particularly on NPL coverage and ratio
Risks to our positive view on Banorte and BanBajio include higher than expected opex, greater than expected spread pressure and a further worsening of credit quality resulting in higher credit charges


Thoughts on Mexican Bank Trends to March 2021

<ul>
<li>Among EM funds, <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 one of the most widely held value stocks</li>
<li>The consensus on Banorte is positive, and we do not challenge this broadly held positive view on the stock, at least not yet</li>
<li>We would agree with management that there is potential to reverse past provisioning charges going forward, as credit quality seems more benign than expected</li>
<li>A very solid capital position, furthermore, adds to the potential for dividend pay-out recovery to at least 50% in 2022</li>
<li>Furthermore core profitability prospects remain sound, even though these have been eroded due to the pandemic effects</li>
<li>Risks to our positive view on Banorte include weaker than expected earnings in non-bank operations going forward, especially in insurance and pensions</li>
</ul>


Among EM funds, Grupo Financiero Banorte-O (GFNORTEO MF)  is one of the most widely held value stocks
The consensus on Banorte is positive, and we do not challenge this broadly held positive view on the stock, at least not yet
We would agree with management that there is potential to reverse past provisioning charges going forward, as credit quality seems more benign than expected
A very solid capital position, furthermore, adds to the potential for dividend pay-out recovery to at least 50% in 2022
Furthermore core profitability prospects remain sound, even though these have been eroded due to the pandemic effects
Risks to our positive view on Banorte include weaker than expected earnings in non-bank operations going forward, especially in insurance and pensions


Banorte (GFNORTEO MX): Don’t Fight the Positive Consensus Call

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.

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Grupo Financiero Banorte SAB d (GFNORTEO MF)

GEM Banks 1Q21 Screens

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Mexican Banks: Stay the Course with Our Two Key Positive Picks, Cautious on SanMex

Political checks to the AMLO political agenda are market positive, as is the US economic recovery; we stick with the Banorte & BanBajio bull calls,...

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Mexican Bank Trends to April 2021

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Thoughts on Mexican Bank Trends to March 2021

Our key metrics spider charts for the top 5 Mexican banks highlight BBVA Bancomer and Banorte for premium returns; system data is reassuring,...

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Banorte (GFNORTEO MX): Don’t Fight the Positive Consensus Call

Banorte is a consensus positive among EM banks, which we support based on its premium 2022 dividend yield of 7%+, undemanding PE and PBV ratios and...

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