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

IRB Brasil Resseguros S/A / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/irb-brasil-resseguros-s-a" target="_blank" data-smartkarma-citation="entities:27599:1" rel="noopener">IRB Brasil Resseguros S/A (IRBR3 BZ)</a>, as the leader by far in Brazil re-insurance, is a high growth and return business which had traded at a significant premium to the market - until its share price slumped by over 50% in the last two weeks</li>
<li>One domestic asset manager has questioned management's claims on the premium profitability of IRB Brasil, which management has addressed with independent actuarial audits and is to supplement with better disclosure going forward</li>
<li>More importantly, the resignation of the chairman at February-end, and earlier this week the departure of both the CEO and CFO under a cloud, has damaged investor confidence</li>
<li>The apparent corporate governance failings at IRB Brasil are meaningful, but, in our view, there is a clear focus on the part of the board to re-establish investor confidence starting with the appointment of a new credible CFO, as well as improved corporate governance and transparency</li>
<li>Despite the uncertainty, we believe that IRB Brasil can still deliver premium ROE going forward, and that even on our proprietary discounts to consensus forecasts, the shares are attractive for those with a high risk appetite</li>
<li>Risks to our positive view on IRB Brasil include new management being slow to rebuild executive integrity and credibility, and for management to make meaningfully negative revisions to 2020 guidance</li>
</ul>



IRB Brasil Resseguros S/A (IRBR3 BZ), as the leader by far in Brazil re-insurance, is a high growth and return business which had traded at a significant premium to the market - until its share price slumped by over 50% in the last two weeks
One domestic asset manager has questioned management's claims on the premium profitability of IRB Brasil, which management has addressed with independent actuarial audits and is to supplement with better disclosure going forward
More importantly, the resignation of the chairman at February-end, and earlier this week the departure of both the CEO and CFO under a cloud, has damaged investor confidence
The apparent corporate governance failings at IRB Brasil are meaningful, but, in our view, there is a clear focus on the part of the board to re-establish investor confidence starting with the appointment of a new credible CFO, as well as improved corporate governance and transparency
Despite the uncertainty, we believe that IRB Brasil can still deliver premium ROE going forward, and that even on our proprietary discounts to consensus forecasts, the shares are attractive for those with a high risk appetite
Risks to our positive view on IRB Brasil include new management being slow to rebuild executive integrity and credibility, and for management to make meaningfully negative revisions to 2020 guidance


IRB Brasil (IRBR3 BZ): Buy for the Brave -Fallen Angel Retains Premium Return Potential

<ul>
<li>Brazil assets have not escaped the impact of the generally "risk-off" mode in markets; for the Brazil big-cap banks, including our top pick <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> this has been compounded by the planned debt restructuring of the Odebrecht conglomerate</li>
<li>
<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>  has also been hit by the Brazil government's plan to sell down its stake, as well as the increased political concerns in Argentina impacting the disposal plans for the bank's subsidiary <a href="https://www.smartkarma.com/entities/banco-patagonia-sa" target="_blank" data-smartkarma-citation="entities:24431:1" rel="noopener">Banco Patagonia Sa (BPAT AR)</a> </li>
<li>
<a href="https://www.smartkarma.com/entities/banco-do-brasil-sa" target="_blank" data-smartkarma-citation="entities:24564:1" rel="noopener"></a>Despite these headwinds, <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> delivered sound 2Q19 results, in both earnings and balance sheet terms, with only a one-time hit to the CET1 ratio due to actuarial adjustments impacting the capital build</li>
<li>In addition, 2H19 should be better for capital generation, as the bank's subsidiary BB Seguros sold its stake in <a href="https://www.smartkarma.com/entities/irb-brasil-resseguros-s-a" target="_blank" data-smartkarma-citation="entities:27599:1" rel="noopener">IRB Brasil Resseguros S/A (IRBR3 BZ)</a> in July, and we see a steady improvement in returns from its Brazil bank affiliate, Banco Votorantim</li>
<li>We believe that <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> shares are great value, versus its LatAm bank peers, and the bank has the potential to deliver higher returns and capital build over the medium term</li>
</ul>


Brazil assets have not escaped the impact of the generally "risk-off" mode in markets; for the Brazil big-cap banks, including our top pick Banco Do Brasil Sa (BBAS3 BZ),  this has been compounded by the planned debt restructuring of the Odebrecht conglomerate

Banco Do Brasil Sa (BBAS3 BZ)  has also been hit by the Brazil government's plan to sell down its stake, as well as the increased political concerns in Argentina impacting the disposal plans for the bank's subsidiary Banco Patagonia Sa (BPAT AR) 

Despite these headwinds, Banco Do Brasil Sa (BBAS3 BZ) delivered sound 2Q19 results, in both earnings and balance sheet terms, with only a one-time hit to the CET1 ratio due to actuarial adjustments impacting the capital build
In addition, 2H19 should be better for capital generation, as the bank's subsidiary BB Seguros sold its stake in IRB Brasil Resseguros S/A (IRBR3 BZ) in July, and we see a steady improvement in returns from its Brazil bank affiliate, Banco Votorantim
We believe that Banco Do Brasil Sa (BBAS3 BZ) shares are great value, versus its LatAm bank peers, and the bank has the potential to deliver higher returns and capital build over the medium term


Banco Do Brasil (BBAS3 BZ) - Sound Progress, and Great Value Versus Its LatAm Peers

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>Adding to last week’s concerns reiterated above, additional developments which have further dampened our overall outlook include a breakdown in the global Discretionary vs. Staples ratio, price and RS deterioration for mainland China, Germany, and European Technology, and new lows in the NASDAQ Global Automobile index. Aside from Germany, other major indexes remain above support in Europe/UK and Japan.  We highlight a number of attractive opportunities in “defensive” Financials including electronic exchanges/markets, insurance, commercial/consumer financing, and select asset managers.</p>

Adding to last week’s concerns reiterated above, additional developments which have further dampened our overall outlook include a breakdown in the global Discretionary vs. Staples ratio, price and RS deterioration for mainland China, Germany, and European Technology, and new lows in the NASDAQ Global Automobile index. Aside from Germany, other major indexes remain above support in Europe/UK and Japan.  We highlight a number of attractive opportunities in “defensive” Financials including electronic exchanges/markets, insurance, commercial/consumer financing, and select asset managers.

Global Equity Strategy: More Cracks Begin to Show

<ul>
<li>Neoenergia registered its IPO on June 6th; <a href="https://www.smartkarma.com/entities/banco-do-brasil-sa" target="_blank" data-smartkarma-citation="entities:24564:1">Banco Do Brasil Sa (BBAS3 BZ)</a> is expected to raise between BRL1.64bn and BRL1.92bn from its 9.35% stake</li>
<li>We estimate that the Banco do Brasil capital contribution from the Neoenergia stake disposal should be small, but it should serve to add to positive sentiment for non-core disposals</li>
<li>More importantly, its 49.9% stake in Banco Votorantim is also up for sale and its returns are improving; we estimate that BVoto's disposal would be the biggest capital relief contribution of its non-core sales </li>
<li>
<a href="https://www.smartkarma.com/entities/banco-patagonia-sa" target="_blank" data-smartkarma-citation="entities:24431:1">Banco Patagonia Sa (BPAT AR)</a>, in which Banco do Brasil has an 80.4% stake, is more of a challenge for disposal given the approaching Argentinian presidential election - and the uncertain outcome - in October 2019, but could be slated for sale in early 2020</li>
<li>Banco do Brasil management has added the 10.1% stake in reinsurance company <a href="https://www.smartkarma.com/entities/irb-brasil-resseguros-s-a" target="_blank" data-smartkarma-citation="entities:27599:1">IRB Brasil Resseguros S/A (IRBR3 BZ)</a> to its list of non-core disposals</li>
<li>Overall, we see that these key disposals in total, through capital gains and RWA reduction in the case of the banks, should bring between 93bps to 100bps of capital relief to Banco do Brasil's CET1 ratio; even if we exclude the BPAT disposal, we estimate capital build from the other disposals could reach 75bps of CET1</li>
</ul>


Neoenergia registered its IPO on June 6th; Banco Do Brasil Sa (BBAS3 BZ) is expected to raise between BRL1.64bn and BRL1.92bn from its 9.35% stake
We estimate that the Banco do Brasil capital contribution from the Neoenergia stake disposal should be small, but it should serve to add to positive sentiment for non-core disposals
More importantly, its 49.9% stake in Banco Votorantim is also up for sale and its returns are improving; we estimate that BVoto's disposal would be the biggest capital relief contribution of its non-core sales 

Banco Patagonia Sa (BPAT AR), in which Banco do Brasil has an 80.4% stake, is more of a challenge for disposal given the approaching Argentinian presidential election - and the uncertain outcome - in October 2019, but could be slated for sale in early 2020
Banco do Brasil management has added the 10.1% stake in reinsurance company IRB Brasil Resseguros S/A (IRBR3 BZ) to its list of non-core disposals
Overall, we see that these key disposals in total, through capital gains and RWA reduction in the case of the banks, should bring between 93bps to 100bps of capital relief to Banco do Brasil's CET1 ratio; even if we exclude the BPAT disposal, we estimate capital build from the other disposals could reach 75bps of CET1


Banco Do Brasil (BBAS3 BZ): Neoenergia IPO Kicks off Non-Core Disposals

Accelerating Tomorrow’s Independent Research

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<ul class="">
<li>
<a href="https://www.smartkarma.com/entities/24564" target="_blank" data-smartkarma-citation="entities:24564:1">Banco Do Brasil Sa (BBAS3 BZ)</a> management is exploring non-core disposals, across its investment portfolio</li>
<li>Its stakes in Banco Votorantim, utility holding Neoenergia and its Argentinian subsidiary <a href="https://www.smartkarma.com/entities/24431" target="_blank" data-smartkarma-citation="entities:24431:1">Banco Patagonia Sa (BPAT AR)</a> have been most readily mentioned, and are the most likely candidates, in our view</li>
<li>The disposal timings, we expect, could be nearer term for domestic, Brazilian assets, with Banco Patagonia more likely to be a longer term project (2020?); still, we see such potential disposals as positive catalysts for Banco do Brasil shares</li>
<li>We estimate that the CET1 accretion from disposals could total 73-80bps, of which the net gain from these potential disposals could add between 10-17 bps , with the risk weighted asset (RWA) reduction expected to free up an additional 63bps of CET1</li>
</ul>



Banco Do Brasil Sa (BBAS3 BZ) management is exploring non-core disposals, across its investment portfolio
Its stakes in Banco Votorantim, utility holding Neoenergia and its Argentinian subsidiary Banco Patagonia Sa (BPAT AR) have been most readily mentioned, and are the most likely candidates, in our view
The disposal timings, we expect, could be nearer term for domestic, Brazilian assets, with Banco Patagonia more likely to be a longer term project (2020?); still, we see such potential disposals as positive catalysts for Banco do Brasil shares
We estimate that the CET1 accretion from disposals could total 73-80bps, of which the net gain from these potential disposals could add between 10-17 bps , with the risk weighted asset (RWA) reduction expected to free up an additional 63bps of CET1


Banco Do Brasil (BBAS3) - Capital Contributions from Potential Non-Core Disposals

Brazil

IRB Brasil Resseguros SA operates as a reinsurance company. The Company offers air travel, fire, and agricultural insurance, as well as reinsurance services. IRB Brasil Resseguros serves customers worldwide.

IRB Brasil Resseguros S/A (IRBR3 BZ)

IRB Brasil (IRBR3 BZ): Buy for the Brave -Fallen Angel Retains Premium Return Potential

IRB Brasil Resseguros S/A (IRBR3 BZ), as the leader by far in Brazil re-insurance, is a high growth and return business which had traded at a...

Victor Galliano

Banco Do Brasil (BBAS3 BZ) - Sound Progress, and Great Value Versus Its LatAm Peers

Brazil assets have not escaped the impact of the generally "risk-off" mode in markets; for the Brazil big-cap banks, including our top pick Banco...

Victor Galliano

Global Equity Strategy: More Cracks Begin to Show

Adding to last week’s concerns reiterated above, additional developments which have further dampened our overall outlook include a breakdown in the...

Vermilion Research

Banco Do Brasil (BBAS3 BZ): Neoenergia IPO Kicks off Non-Core Disposals

Neoenergia registered its IPO on June 6th; Banco Do Brasil Sa (BBAS3 BZ) is expected to raise between BRL1.64bn and BRL1.92bn from its 9.35%...

Victor Galliano

Banco Do Brasil (BBAS3) - Capital Contributions from Potential Non-Core Disposals

Banco Do Brasil Sa (BBAS3 BZ) management is exploring non-core disposals, across its investment portfolio Its stakes in Banco Votorantim, utility...

Boost Research