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>Bank sector trends to October continue to be sound, but return headwinds are emerging; further tightening credit spreads and initial signs of worsening in consumer credit quality</li>
<li>To October, funding costs are rising faster than loan yields, crimping credit spreads, and the rising credit card cost of risk indicates a worsening outlook for consumer credit quality</li>
<li>BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through BBVA equity; we continue to be cautious on Banorte, and we recommend taking profits on BanBajio</li>
</ul>


Bank sector trends to October continue to be sound, but return headwinds are emerging; further tightening credit spreads and initial signs of worsening in consumer credit quality
To October, funding costs are rising faster than loan yields, crimping credit spreads, and the rising credit card cost of risk indicates a worsening outlook for consumer credit quality
BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through BBVA equity; we continue to be cautious on Banorte, and we recommend taking profits on BanBajio


Mexican Banks’ October Data and Trends – Credit Spread Erosion a Bigger Threat than Credit Quality?

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 overweight reaches record levels among active GEM investors, moves to top country overweight.</li>
<li>Mexico a beneficiary from a rotation out of Russia, Turkey and Tech, alongside Brazil and some of the MENA nations.</li>
<li>Grupo Financiero Banorte and Wal-Mart de Mexico are widely held and have been instrumental in Mexico’s rise up the ranks over the past couple of years.  </li>
</ul>


Mexico overweight reaches record levels among active GEM investors, moves to top country overweight.
Mexico a beneficiary from a rotation out of Russia, Turkey and Tech, alongside Brazil and some of the MENA nations.
Grupo Financiero Banorte and Wal-Mart de Mexico are widely held and have been instrumental in Mexico’s rise up the ranks over the past couple of years.  


<ul>
<li>Banorte pulls out of the Banamex bidding, leaving two Mexican groups as potential bidders; this now removes the risk of a capital raise for Banorte and a potential dividend cut</li>
<li>Banorte delivered a strong set of 3Q22 results, yet we believe that its returns could be close to peaking and that we expect a profitability downturn in 2023</li>
<li>The withdrawal from the Banamex bidding is shareholder positive, but we see that current valuations do not reflect 2023 risks, especially from higher cost of risk and squeezed credit spreads</li>
</ul>


Banorte pulls out of the Banamex bidding, leaving two Mexican groups as potential bidders; this now removes the risk of a capital raise for Banorte and a potential dividend cut
Banorte delivered a strong set of 3Q22 results, yet we believe that its returns could be close to peaking and that we expect a profitability downturn in 2023
The withdrawal from the Banamex bidding is shareholder positive, but we see that current valuations do not reflect 2023 risks, especially from higher cost of risk and squeezed credit spreads


Banorte (GFNORTEO MX) – No Longer Bidding for Banamex, but Tougher Fundamental Hurdles into 2023

Thematic (Sector/Industry)

<ul>
<li>Bank sector trends to August continue to be robust, but potential challenges lie ahead for returns; tightening credit spreads and a potential worsening of credit quality</li>
<li>Credit spreads are being crimped by fast rising funding costs, and there is emerging evidence of worsening consumer credit quality through consumer cost of risk and delinquency</li>
<li>BBVA Mexico generates the highest ROE versus its peers due to strong revenue returns, Banorte has the lowest NPL ratio and BanBajio has high capital ratios and returns</li>
</ul>


Bank sector trends to August continue to be robust, but potential challenges lie ahead for returns; tightening credit spreads and a potential worsening of credit quality
Credit spreads are being crimped by fast rising funding costs, and there is emerging evidence of worsening consumer credit quality through consumer cost of risk and delinquency
BBVA Mexico generates the highest ROE versus its peers due to strong revenue returns, Banorte has the lowest NPL ratio and BanBajio has high capital ratios and returns


Mexican Banks’ August Data and Trends – as Good as It Gets?

Event-Driven

Grupo Financiero Banorte SAB d / Event-Driven

<ul>
<li>Santander’s USD6bn offer for Banamex was rejected by Citi as too low, according to press reports; the estimated valuation range for Banamex is now from USD7bn to USD8bn</li>
<li>This leaves Inbursa, the Mifel-Grupo Mexico consortium and Banorte as contenders, with Banorte still a leading contender</li>
<li>We continue to be cautious on Banorte, as its potential M&amp;A success would mean big challenges in terms of capital requirements, along with portfolio de-risking and unpopular cost-cutting</li>
</ul>


Santander’s USD6bn offer for Banamex was rejected by Citi as too low, according to press reports; the estimated valuation range for Banamex is now from USD7bn to USD8bn
This leaves Inbursa, the Mifel-Grupo Mexico consortium and Banorte as contenders, with Banorte still a leading contender
We continue to be cautious on Banorte, as its potential M&amp;A success would mean big challenges in terms of capital requirements, along with portfolio de-risking and unpopular cost-cutting


Banamex – Now There Are Three Potential Bidders, Still Including Banorte

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)

Mexican Banks’ October Data and Trends – Credit Spread Erosion a Bigger Threat than Credit Quality?

Mexican bank October data show more credit spread erosion and signs of poorer credit quality; we advise BanBajio holders to take profits, we stay...

Victor Galliano

Mexico Moves to Top EM Overweight

Mexican exposure among EM investors grinds higher. Rotation among managers moves Mexico to the largest country overweight in EM, with current...

Steven Holden

Banorte (GFNORTEO MX) – No Longer Bidding for Banamex, but Tougher Fundamental Hurdles into 2023

Banorte's withdrawal from Banamex bidding is positive, but current valuations do not reflect 2023 risks, especially from higher cost of risk,...

Victor Galliano

Mexican Banks’ August Data and Trends – as Good as It Gets?

Bank sector trends to August continue to be robust, but potential challenges lie ahead; tightening credit spreads and a potential NPL worsening; we...

Victor Galliano

Banamex – Now There Are Three Potential Bidders, Still Including Banorte

Banorte is expected to bid for Banamex and the risks are skewed against its shareholders; Banorte could need to raise capital and could find it...

Victor Galliano

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