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>Among EM banks, our top picks are Sberbank in Russia, Banco do Brasil and HDFC Bank in India; we are negative on recent IPO Nubank due to inflated market expectations</li>
<li>Our top picks for 2022 are BBVA and Banco BPM for Southern Europe banks. In Exchanges, we are positive on B3 of Brazil and SGX</li>
<li>In payments, we like Mastercard and Pagseguro, but we are negative on Paytm; we see BTG Pactual as an attractive pick and winner in the digital wealth managers and brokers</li>
</ul>


Among EM banks, our top picks are Sberbank in Russia, Banco do Brasil and HDFC Bank in India; we are negative on recent IPO Nubank due to inflated market expectations
Our top picks for 2022 are BBVA and Banco BPM for Southern Europe banks. In Exchanges, we are positive on B3 of Brazil and SGX
In payments, we like Mastercard and Pagseguro, but we are negative on Paytm; we see BTG Pactual as an attractive pick and winner in the digital wealth managers and brokers


2022 High Conviction Ideas in FinTech & Financials

Thematic (Sector/Industry)

<ul>
<li>Global exchanges are adapting to a more price pressured environment in trading fees, including the growth of off-exchange trading</li>
<li>The most forward looking exchanges are actively diversifying their revenue base away from trading and transaction fees, and they are focusing on post-trade services, as well as monetising their access to “big data” and data flows</li>
<li>Select exchanges have accelerated their revenue diversification strategies through M&amp;A; two high profile examples are <a href="https://www.smartkarma.com/entities/intercontinental-exchange-inc" target="_blank" data-smartkarma-citation="entities:10221:1" rel="noopener">Intercontinental Exchange (ICE US)</a> acquiring Ellie Mae and <a href="https://www.smartkarma.com/entities/london-stock-exchange-group" target="_blank" data-smartkarma-citation="entities:22034:1" rel="noopener">London Stock Exchange (LSE LN)</a> acquiring Refinitiv which, in part, reflects the attraction of the “big data” opportunity</li>
<li>The recent merger rumours within the exchanges sector between <a href="https://www.smartkarma.com/entities/cboe-global-markets-inc" target="_blank" data-smartkarma-citation="entities:20189:1" rel="noopener">Cboe Global Markets (CBOE US)</a> &amp; <a href="https://www.smartkarma.com/entities/cme-group-inc" target="_blank" data-smartkarma-citation="entities:12353:1" rel="noopener">Cme Group Inc (CME US)</a> – even though this merger did not materialise – reflect the potential for cost savings and synergies from exchange mergers</li>
<li>In emerging markets, the shift away from trading revenues is also apparent, although the pace of change seems more measured due to regulatory constraints</li>
<li>Among developed market exchanges, we believe that ICE is the “poster child” on revenue transformation, and is not overly expensive on valuations, with <a href="https://www.smartkarma.com/entities/deutsche-boerse-ag" target="_blank" data-smartkarma-citation="entities:21604:1" rel="noopener">Deutsche Boerse Ag (DB1 GR)</a> being the value pick and we also find CBOE to be attractive; we believe that LSEG is still a “show me” story on Refinitiv integration, even if valuations are undemanding</li>
<li>In emerging markets, we believe that out-of-favour <a href="https://www.smartkarma.com/entities/b3-sa-brasil-bolsa-balcao" target="_blank" data-smartkarma-citation="entities:24580:1" rel="noopener">B3 Sa - Brasil Bolsa Balcao (B3SA3 BZ)</a> shares have potential to reverse the trend and re-rate on attractive valuations, with smaller cap <a href="https://www.smartkarma.com/entities/bolsa-mexicana-de-valores-sab" target="_blank" data-smartkarma-citation="entities:24766:1" rel="noopener">Bolsa Mexicana De Valores Sab (BOLSAA MM)</a> attractive on both its broad revenue mix and valuations; we are bearish on <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> shares, with the market overly positive on the exchange’s prospects, in our view</li>
<li>
<a href="https://www.smartkarma.com/entities/singapore-exchange-ltd" target="_blank" data-smartkarma-citation="entities:1047:1" rel="noopener">SGX (SGX SP)</a> is one to watch; management has more to do to diversify the revenue base, yet its valuations are undemanding and competition concerns may be overdone</li>
<li>We include the listed crypto exchange <a href="https://www.smartkarma.com/entities/coinbase-global-inc" target="_blank" data-smartkarma-citation="entities:32227:1" rel="noopener">Coinbase (COIN US)</a> in this exchanges report for the first time; with its business model very geared towards trading and transaction fees, we are cautious on Coinbase given the very high volatility in both volumes and prices inherent in the world of crypto trading, as well as the regulatory hurdles</li>
<li>Risks to our positive views on B3, BolsaMex, ICE, CBOE and Deutsche Boerse include worse than expected post-trade and data and IT revenue generation as well as a more hostile regulatory climate; risks to our bearish views on HKEX and Coinbase are better than expected revenue and EBITDA growth</li>
</ul>


Global exchanges are adapting to a more price pressured environment in trading fees, including the growth of off-exchange trading
The most forward looking exchanges are actively diversifying their revenue base away from trading and transaction fees, and they are focusing on post-trade services, as well as monetising their access to “big data” and data flows
Select exchanges have accelerated their revenue diversification strategies through M&amp;A; two high profile examples are Intercontinental Exchange (ICE US) acquiring Ellie Mae and London Stock Exchange (LSE LN) acquiring Refinitiv which, in part, reflects the attraction of the “big data” opportunity
The recent merger rumours within the exchanges sector between Cboe Global Markets (CBOE US) &amp; Cme Group Inc (CME US) – even though this merger did not materialise – reflect the potential for cost savings and synergies from exchange mergers
In emerging markets, the shift away from trading revenues is also apparent, although the pace of change seems more measured due to regulatory constraints
Among developed market exchanges, we believe that ICE is the “poster child” on revenue transformation, and is not overly expensive on valuations, with Deutsche Boerse Ag (DB1 GR) being the value pick and we also find CBOE to be attractive; we believe that LSEG is still a “show me” story on Refinitiv integration, even if valuations are undemanding
In emerging markets, we believe that out-of-favour B3 Sa - Brasil Bolsa Balcao (B3SA3 BZ) shares have potential to reverse the trend and re-rate on attractive valuations, with smaller cap Bolsa Mexicana De Valores Sab (BOLSAA MM) attractive on both its broad revenue mix and valuations; we are bearish on HKEX (388 HK) shares, with the market overly positive on the exchange’s prospects, in our view

SGX (SGX SP) is one to watch; management has more to do to diversify the revenue base, yet its valuations are undemanding and competition concerns may be overdone
We include the listed crypto exchange Coinbase (COIN US) in this exchanges report for the first time; with its business model very geared towards trading and transaction fees, we are cautious on Coinbase given the very high volatility in both volumes and prices inherent in the world of crypto trading, as well as the regulatory hurdles
Risks to our positive views on B3, BolsaMex, ICE, CBOE and Deutsche Boerse include worse than expected post-trade and data and IT revenue generation as well as a more hostile regulatory climate; risks to our bearish views on HKEX and Coinbase are better than expected revenue and EBITDA growth


Exchanges – More than Just Trading Places

Alpha-Centric ESG Research

Kyle Rudden

Recent mainstreaming of sustainability and ESG-minded investing has spawned a superabundance of "green" investment products. Today's carte of mainstay ESG products – namely exchange-traded funds (ETFs) and mutual funds – is so saturated that most new products are just more of the same; perhaps with a minor new spin on an old ESG theme (low carbon, no carbon, efficient carbon).... solutions without problems in need of solving.Once in a while, something special comes along. Not just a new paint job on an old vehicle but an entirely new ESG asset class and product category. New tools for the ESG investor's toolbox. Such as <a href="https://www.smartkarma.com/entities/singapore-exchange-ltd" target="_blank" data-smartkarma-citation="entities:1047:1" rel="noopener">Singapore Exchange (SGX SP)</a> ESG futures, which enable ESG-tilted exposure in REITs via <a href="https://www.smartkarma.com/entities/sgx-nikkei-esg-reit-index-futures" target="_blank" data-smartkarma-citation="entities:33480:1" rel="noopener">SGX Nikkei ESG-REIT Index Futures (JRTA INDEX)</a>, and other ESG-related hedging and arbitrage.... solutions to real problems for "green" finance.One in a blue moon, something extraordinarily special comes along. Not just a new ESG asset class and product category, but a potential game-changer that disrupts and transforms sustainable/ESG investing and finance. In many ways, for many stakeholders. A remedy for the most universal and agonizing pain points for sustainable finance, and possibly the key to global sustainability.Nothing extraordinarily special has come along yet.Still too much uncertainty for grandiose adjectives.But last week's announcement from the New York Stock Exchange (NYSE) and Intrinsic Exchange Group (IEG) – regarding their new asset class called "Natural Asset Companies" (NACs) – portends that kind of blue-moon game-changer. NACs are still under development, with existential details still undetermined. But the potential impact of NACs is epic, for a rare trifecta of reasons:<ol>
<li>
Product/Market Fit: NACs make a lot of sense, and from what we know so far could be among the best (if not the best) product/market fits ever for new ESG asset class/product launches.</li>
<li>
Addressable Market: The potential market for NACs is huge due to the magnitude of natural capital, and broad relevance of NACs. It is a market potential measured in trillions of dollars.</li>
<li>
Perfect Partnership: NYSE/IEG is the partnership most likely to succeed at something such as  this; complementary skills sets, and with a well-developed product right out of the gate.</li>
</ol>

Recent mainstreaming of sustainability and ESG-minded investing has spawned a superabundance of "green" investment products. Today's carte of mainstay ESG products – namely exchange-traded funds (ETFs) and mutual funds – is so saturated that most new products are just more of the same; perhaps with a minor new spin on an old ESG theme (low carbon, no carbon, efficient carbon).... solutions without problems in need of solving.Once in a while, something special comes along. Not just a new paint job on an old vehicle but an entirely new ESG asset class and product category. New tools for the ESG investor's toolbox. Such as Singapore Exchange (SGX SP) ESG futures, which enable ESG-tilted exposure in REITs via SGX Nikkei ESG-REIT Index Futures (JRTA INDEX), and other ESG-related hedging and arbitrage.... solutions to real problems for "green" finance.One in a blue moon, something extraordinarily special comes along. Not just a new ESG asset class and product category, but a potential game-changer that disrupts and transforms sustainable/ESG investing and finance. In many ways, for many stakeholders. A remedy for the most universal and agonizing pain points for sustainable finance, and possibly the key to global sustainability.Nothing extraordinarily special has come along yet.Still too much uncertainty for grandiose adjectives.But last week's announcement from the New York Stock Exchange (NYSE) and Intrinsic Exchange Group (IEG) – regarding their new asset class called "Natural Asset Companies" (NACs) – portends that kind of blue-moon game-changer. NACs are still under development, with existential details still undetermined. But the potential impact of NACs is epic, for a rare trifecta of reasons:

Product/Market Fit: NACs make a lot of sense, and from what we know so far could be among the best (if not the best) product/market fits ever for new ESG asset class/product launches.

Addressable Market: The potential market for NACs is huge due to the magnitude of natural capital, and broad relevance of NACs. It is a market potential measured in trillions of dollars.

Perfect Partnership: NYSE/IEG is the partnership most likely to succeed at something such as  this; complementary skills sets, and with a well-developed product right out of the gate.


Natural Asset Companies (NACs): New ESG Asset Class Aims to Transform Sustainable Capital Markets

If you have never heard of the Long-Term Stock Exchange (LTSE), that is understandable. It is new, and still quite small; in fact, it is the second smallest in the world (for reference LTSE is larger than the Armenia Securities Exchange and considerably smaller than the Bermuda Stock Exchange).But this is about strategy, not size.As the world's first and one-of-a-kind "ESG stock exchange," LTSE's evolution is worth watching. One big milestone came last week when Asana (ASAN US) and <a href="https://www.smartkarma.com/entities/twilio-inc" target="_blank" data-smartkarma-citation="entities:26473:1" rel="noopener">Twilio (TWLO US)</a> began trading; LTSE's first two listings, and solid "anchors" that should give other issuers confidence in LTSE.This Insight provides an overview of LTSE – its ESG business model, history, funding, expertise, and outlook including potential future listings. Not just from the perspective of LTSE, but also in terms of the broader implications for sustainable/ESG investing and capital markets.

If you have never heard of the Long-Term Stock Exchange (LTSE), that is understandable. It is new, and still quite small; in fact, it is the second smallest in the world (for reference LTSE is larger than the Armenia Securities Exchange and considerably smaller than the Bermuda Stock Exchange).But this is about strategy, not size.As the world's first and one-of-a-kind "ESG stock exchange," LTSE's evolution is worth watching. One big milestone came last week when Asana (ASAN US) and Twilio (TWLO US) began trading; LTSE's first two listings, and solid "anchors" that should give other issuers confidence in LTSE.This Insight provides an overview of LTSE – its ESG business model, history, funding, expertise, and outlook including potential future listings. Not just from the perspective of LTSE, but also in terms of the broader implications for sustainable/ESG investing and capital markets.

Asana and Twilio Are First Listings for ESG-Focused Long-Term Stock Exchange (LTSE)

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<div class="content-highlight">
In this insight, we revisit our valuation of <a href="https://www.smartkarma.com/entities/coinbase-global-inc" target="_blank" data-smartkarma-citation="entities:32227:1" rel="noopener">Coinbase (COIN US)</a> post the Bitcoin plunge. Among many calls on IPOs/direct listings this year, Coinbase has been our most bearish call.
On the first day of direct listing, Coinbase's share price reached as high as $112 billion ($429.5). Coinbase's share price has fallen to $224.8 per share (market cap of $58.9 billion). Although Coinbase's share price has fallen more than 40% since the highs in the first day of trading, we believe there is a further downside risk to this story. Our base valuation suggests a further 30%+ downside risk to Coinbase from current levels. 
</div>


In this insight, we revisit our valuation of Coinbase (COIN US) post the Bitcoin plunge. Among many calls on IPOs/direct listings this year, Coinbase has been our most bearish call.
On the first day of direct listing, Coinbase's share price reached as high as $112 billion ($429.5). Coinbase's share price has fallen to $224.8 per share (market cap of $58.9 billion). Although Coinbase's share price has fallen more than 40% since the highs in the first day of trading, we believe there is a further downside risk to this story. Our base valuation suggests a further 30%+ downside risk to Coinbase from current levels. 


Revisiting Our Valuation of Coinbase Post Bitcoin Plunge

United States

Intercontinental Exchange, Inc. operates global commodity and financial products marketplaces.  The Company operates electronic energy markets and soft commodity exchanges as well.  ICE offers access to contracts based on crude oil and refined products, natural gas, power and emissions, as well as agricultural commodities including cocoa, coffee, cotton, orange juice, and sugar.

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Intercontinental Exchange (ICE US)

2022 High Conviction Ideas in FinTech & Financials

Our 2022 high conviction ideas include buys on Sberbank, Banco do Brasil and HDFC Bank, as well as BBVA, Banco BPM, B3, SGX, Mastercard and...

Victor Galliano

Exchanges – More than Just Trading Places

We assess exchanges based on revenue mix ex-trading; the poster child is ICE, other attractive stocks are Deutsche Borse, CBOE, B3 & BolsaMex, with...

Victor Galliano

Natural Asset Companies (NACs): New ESG Asset Class Aims to Transform Sustainable Capital Markets

NYSE and Intrinsic Exchange Group announced a new asset class called "Natural Asset Companies" (NACs). Mission-critical hurdles remain, but NACs...

Kyle Rudden

Asana and Twilio Are First Listings for ESG-Focused Long-Term Stock Exchange (LTSE)

Long-Term Stock Exchange just landed its first two listings, Asana and Twilio. It's a major milestone for this new ESG-focused exchange.

Kyle Rudden

Revisiting Our Valuation of Coinbase Post Bitcoin Plunge

In this insight, we revisit our valuation of Coinbase (COIN US) post the Bitcoin plunge. Among many calls on IPOs/direct listings this year,...

Douglas Kim

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