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>Major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) continue to hold above critical support levels and market dynamics remain largely positive. Until this changes, we believe global equities are headed higher in the coming weeks and months. Additionally, we are reiterating our overweight recommendations on small-caps and value as we believe outperformance from these areas is likely to continue.</p>

Major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) continue to hold above critical support levels and market dynamics remain largely positive. Until this changes, we believe global equities are headed higher in the coming weeks and months. Additionally, we are reiterating our overweight recommendations on small-caps and value as we believe outperformance from these areas is likely to continue.

Global Equity Strategy: Small-Caps and Value Stocks Remain in Focus

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.

Thematic (Sector/Industry)

<ul>
<li>Bank system loan growth to June has slowed, with the biggest downturn in corporate and directed lending</li>
<li>Despite this, private sector banks continue to outpace public sector banks on loan growth, and private banks are gaining market share</li>
<li>Credit quality remains benign, and system NPL coverage is healthy</li>
<li>Spreads are holding up better than we had expected in lending to individuals in 1H19, but we expect spreads to erode over the medium term</li>
<li>2Q19 results for the big cap private sector banks were generally good, but we believe that spread erosion going forward, and increased competition from digital challengers, will limit further upside potential to ROEs</li>
<li>We believe the one exception to this view is public sector controlled <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> where we see less downside risk to margins and spreads and further potential for opex control to contribute to medium term ROE expansion</li>
</ul>


Bank system loan growth to June has slowed, with the biggest downturn in corporate and directed lending
Despite this, private sector banks continue to outpace public sector banks on loan growth, and private banks are gaining market share
Credit quality remains benign, and system NPL coverage is healthy
Spreads are holding up better than we had expected in lending to individuals in 1H19, but we expect spreads to erode over the medium term
2Q19 results for the big cap private sector banks were generally good, but we believe that spread erosion going forward, and increased competition from digital challengers, will limit further upside potential to ROEs
We believe the one exception to this view is public sector controlled Banco Do Brasil Sa (BBAS3 BZ) where we see less downside risk to margins and spreads and further potential for opex control to contribute to medium term ROE expansion


Brazilian Banks; June Central Bank Data Is a Mixed Bag

Event-Driven

<ul>
<li>At first sight, Itaú Unibanco’s offer for the minorities of Itaú Corpbanca is great value for Itaú Unibanco shareholders, but we do not believe that this is so clear cut</li>
<li>In Chile, Itaú Corpbanca is addressing its scale issue through cost control and its digital banking strategy; Colombia is more of a challenge, not helped by President Petro’s anti-business attitude</li>
<li>We see this as a fair offer for Itaú Corpbanca shareholders, given the drag from Colombia; yet it needs a successful Colombia disposal to create value for Itaú Unibanco shareholders</li>
</ul>


At first sight, Itaú Unibanco’s offer for the minorities of Itaú Corpbanca is great value for Itaú Unibanco shareholders, but we do not believe that this is so clear cut
In Chile, Itaú Corpbanca is addressing its scale issue through cost control and its digital banking strategy; Colombia is more of a challenge, not helped by President Petro’s anti-business attitude
We see this as a fair offer for Itaú Corpbanca shareholders, given the drag from Colombia; yet it needs a successful Colombia disposal to create value for Itaú Unibanco shareholders


Itaú Unibanco Offer for Itaú Corpbanca Minorities; Good Value or Value Trap?

Equity Bottom-Up

<ul>
<li>Itaú Corpbanca operates in Chile and Colombia, with the recent win by Colombian presidential candidate Gustavo Petro hitting Colombian share prices, including Itaú Corpbanca</li>
<li>Nonetheless, we see some evidence of fundamental recovery from a bottom up perspective in the case of Itaú Corpbanca, despite the political headwinds</li>
<li>We rate Itaú Corpbanca as a contrarian buy; it is an emerging recovery stock, unloved and undervalued by the market but with a firmer balance sheet base and returns recovering</li>
</ul>


Itaú Corpbanca operates in Chile and Colombia, with the recent win by Colombian presidential candidate Gustavo Petro hitting Colombian share prices, including Itaú Corpbanca
Nonetheless, we see some evidence of fundamental recovery from a bottom up perspective in the case of Itaú Corpbanca, despite the political headwinds
We rate Itaú Corpbanca as a contrarian buy; it is an emerging recovery stock, unloved and undervalued by the market but with a firmer balance sheet base and returns recovering


Itaú Corpbanca – Contrarian Buy Idea in the Andean Banks

Banco Bilbao Vizcaya Argentari / Event-Driven

<ul>
<li>In our view, the PNC-BBVA USA Bancshares deal reflects the trend towards “in country” domestic bank consolidation in developed markets, given very low interest rates, the pressure on fees and the need to focus on opex reduction</li>
<li>The attractive price tag of USD11.6bn (€9.7bn) provides <a href="https://www.smartkarma.com/entities/banco-bilbao-vizcaya-argentari" target="_blank" data-smartkarma-citation="entities:21251:1" rel="noopener">Banco Bilbao Vizcaya Argentari (BBVA SM)</a> with a big capital uplift at a limited cost to earnings; it reflects a historic (2019A) PE multiple of 19.7x and PTBV ratio of 1.34x, equivalent to 45% of market cap on at the close of 13<sup>th</sup> November</li>
<li>The US commercial bank disposal also gives BBVA a 294bps boost to its core capital ratio, which stood at 11.52% at 3Q20 end, and post deal would result in CET1 ratio of c 14.5%</li>
<li>Even though BBVA’s disposal will be EPS dilutive post-deal, the cost of foregone earnings is relatively low, given the sale price; USA Bancshares accounted for less than 10% of groups earnings in 2019 and 13% of the group’s gross income in the first nine months of 2020</li>
<li>BBVA management intends to redeploy capital in its core markets, and also has the option to do a large share buy-back at current share prices, ECB permitting</li>
<li>The big question is how management will focus on excess capital redeployment through potential M&amp;A going forward, and will look to redress the earnings split between its core emerging (c 70%) and developed markets (c 30%), post this disposal; we put forward our views on M&amp;A options in this report</li>
<li>Risks to our positive view on BBVA include the ECB maintaining strict regulatory constraints on a share buyback; also that BBVA is selling its USA franchise at a relatively low point in the macro-economic cycle</li>
</ul>


In our view, the PNC-BBVA USA Bancshares deal reflects the trend towards “in country” domestic bank consolidation in developed markets, given very low interest rates, the pressure on fees and the need to focus on opex reduction
The attractive price tag of USD11.6bn (€9.7bn) provides Banco Bilbao Vizcaya Argentari (BBVA SM) with a big capital uplift at a limited cost to earnings; it reflects a historic (2019A) PE multiple of 19.7x and PTBV ratio of 1.34x, equivalent to 45% of market cap on at the close of 13th November
The US commercial bank disposal also gives BBVA a 294bps boost to its core capital ratio, which stood at 11.52% at 3Q20 end, and post deal would result in CET1 ratio of c 14.5%
Even though BBVA’s disposal will be EPS dilutive post-deal, the cost of foregone earnings is relatively low, given the sale price; USA Bancshares accounted for less than 10% of groups earnings in 2019 and 13% of the group’s gross income in the first nine months of 2020
BBVA management intends to redeploy capital in its core markets, and also has the option to do a large share buy-back at current share prices, ECB permitting
The big question is how management will focus on excess capital redeployment through potential M&amp;A going forward, and will look to redress the earnings split between its core emerging (c 70%) and developed markets (c 30%), post this disposal; we put forward our views on M&amp;A options in this report
Risks to our positive view on BBVA include the ECB maintaining strict regulatory constraints on a share buyback; also that BBVA is selling its USA franchise at a relatively low point in the macro-economic cycle


BBVA: So Long, Sun-Belt – What Next; Buybacks and Potentially M&A?

Chile

Itau CorpBanc offers banking services to both businesses and individuals in Chile, including loans and leasing services to businesses, and loans, credit card services and mortgages to individuals.

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Itau CorpBanca (ITAUCORP CI)

Global Equity Strategy: Small-Caps and Value Stocks Remain in Focus

We are reiterating our overweight recommendations on small-caps and value as we believe outperformance from these areas is likely to continue.

Vermilion Research

Brazilian Banks; June Central Bank Data Is a Mixed Bag

Bank system loan growth to June has slowed, with the biggest downturn in corporate and directed lending Despite this, private sector banks...

Victor Galliano

Itaú Unibanco Offer for Itaú Corpbanca Minorities; Good Value or Value Trap?

We see this as a fair offer for Itaú Corpbanca shareholders, given the drag from the Colombian operations; still, it needs a successful Colombia...

Victor Galliano

Itaú Corpbanca – Contrarian Buy Idea in the Andean Banks

Itau Corpbanca's share price has been hit, partly due to bad sentiment towards Colombia; yet there is evidence of improving returns, credit quality...

Victor Galliano

BBVA: So Long, Sun-Belt – What Next; Buybacks and Potentially M&A?

BBVA's sale of its US bank will give it excess capital to redeploy, in both share buybacks and potentially M&A too; we explore some potential M&A...

Victor Galliano

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