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>Lula’s narrow win in the second round of the Brazilian Presential election has so far passed in relative calm, although sitting President Jair Bolsonaro has yet to concede defeat</li>
<li>Markets will be hoping for a peaceful transition, and influential Bolsonaro allies have asked Brazilians to respect the result, to avoid social unrest and any potential intervention by the military</li>
<li>It is unclear how anti-market Lula’s policies will be but we expect downside risk for Brazilian financials and fintechs; Banco do Brasil is in for volatility, Itausa may be defensive</li>
</ul>


Lula’s narrow win in the second round of the Brazilian Presential election has so far passed in relative calm, although sitting President Jair Bolsonaro has yet to concede defeat
Markets will be hoping for a peaceful transition, and influential Bolsonaro allies have asked Brazilians to respect the result, to avoid social unrest and any potential intervention by the military
It is unclear how anti-market Lula’s policies will be but we expect downside risk for Brazilian financials and fintechs; Banco do Brasil is in for volatility, Itausa may be defensive


Brazilian Presidential Election; What Could a Lula Victory Mean for Financials and Fintech?

Event-Driven

<ul>
<li>Itausa has acquired a 10.3% stake in toll road company CCR, in a diversification move away from its core financials holdings; yet financials still account for 90%+ of holdings value</li>
<li>Itausa’s stated NAV discount is over 26%, and we believe this discount is slightly under-estimated; Itausa’s indirect XP stake adds to the NAV, implying a discount of close to 28%</li>
<li>Reinvesting the proceeds of XP disposals in CCR makes good diversification sense; aside from the historically high NAV discount, Itausa has an attractive LTM dividend yield of over 5%</li>
</ul>


Itausa has acquired a 10.3% stake in toll road company CCR, in a diversification move away from its core financials holdings; yet financials still account for 90%+ of holdings value
Itausa’s stated NAV discount is over 26%, and we believe this discount is slightly under-estimated; Itausa’s indirect XP stake adds to the NAV, implying a discount of close to 28%
Reinvesting the proceeds of XP disposals in CCR makes good diversification sense; aside from the historically high NAV discount, Itausa has an attractive LTM dividend yield of over 5%


Itausa (ITSA4 BZ); Attractive NAV Discount, Dividend Yield & Portfolio Diversification Are Positives

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

S&P BSE SENSEX Index / Technical Analysis

<ul>
<li>Many major indexes are still testing (and holding above) critical supports. This includes MSCI ACWI (ACWI-US), TOPIX/TOPIX Small/Nikkei 225, EURO STOXX 50, STOXX Europe 600, and the DAX</li>
<li>Our overall outlook remains neutral, and we continue to see many attractive buying opportunities, especially out of Japan, India, and a new one -- Brazil.</li>
<li>Buy ideas focus on the Consumer Discretionary and Financials Sectors, with the vast majority of stock recommendations from Japan, India, and Brazil</li>
</ul>


Many major indexes are still testing (and holding above) critical supports. This includes MSCI ACWI (ACWI-US), TOPIX/TOPIX Small/Nikkei 225, EURO STOXX 50, STOXX Europe 600, and the DAX
Our overall outlook remains neutral, and we continue to see many attractive buying opportunities, especially out of Japan, India, and a new one -- Brazil.
Buy ideas focus on the Consumer Discretionary and Financials Sectors, with the vast majority of stock recommendations from Japan, India, and Brazil


Europe, Japan, $ACWI Testing Critical Supports; Rising DXY, Global Sovereign Yields a Major Headwind

<ul>
<li>Itausa is trading at a HoldCo NAV discount in excess of 25%, which is historically rare; we reiterate our positive view on Itausa</li>
<li>We believe that the NAV is under-estimated; separate from Itausa’s stake in XP, Itaú Unibanco, which is Itausa’s core holding with a 37.2% stake, has a direct 9.96% XP stake</li>
<li>Adding its indirect XP stake share to Itausa’s NAV implies a discount of 27%; since December 2008, only on 11% of the month end datapoints has Itausa’s discount exceeded 25%</li>
</ul>


Itausa is trading at a HoldCo NAV discount in excess of 25%, which is historically rare; we reiterate our positive view on Itausa
We believe that the NAV is under-estimated; separate from Itausa’s stake in XP, Itaú Unibanco, which is Itausa’s core holding with a 37.2% stake, has a direct 9.96% XP stake
Adding its indirect XP stake share to Itausa’s NAV implies a discount of 27%; since December 2008, only on 11% of the month end datapoints has Itausa’s discount exceeded 25%


Itausa (ITSA4 BZ) – Historically Big NAV Discount Buying Opportunity

Equity Bottom-Up

<ul>
<li>Banco Central do Brasil has been raising benchmark interest rates aggressively since 1H2021 and we believe it is approaching the peak of its tightening cycle; this feeds into loan spreads</li>
<li>1Q22 Brazil bank results showed limited evidence of widening spreads, due to a time lag, but loan quality is worsening due to the hiking interest rates amid the soft economy</li>
<li>Disciplined loan origination should support bank returns, especially in the consumer and SME segments, containing credit cost charges growth as spreads expand; deep-value Banco do Brasil remains our top pick</li>
</ul>


Banco Central do Brasil has been raising benchmark interest rates aggressively since 1H2021 and we believe it is approaching the peak of its tightening cycle; this feeds into loan spreads
1Q22 Brazil bank results showed limited evidence of widening spreads, due to a time lag, but loan quality is worsening due to the hiking interest rates amid the soft economy
Disciplined loan origination should support bank returns, especially in the consumer and SME segments, containing credit cost charges growth as spreads expand; deep-value Banco do Brasil remains our top pick


Brazil Banks – Returns Tug of War Between Spreads and Credit Costs, Stick with Banco Do Brasil

Brazil

Itau Unibanco Holding S.A. attracts deposits and offer retail, commercial, corporate, and private banking services. The Bank offers consumer loans, financial management, insurance, pension plans, treasury services, mortgage loans, lease financing, securities brokerage, and foreign exchange services.

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Itau Unibanco Holding (ITUB4 BZ)

Brazilian Presidential Election; What Could a Lula Victory Mean for Financials and Fintech?

Lula's victory is near term negative for Brazil risk assets; in fintech & financials, we see volatility risk for Banco do Brasil, we are negative...

Victor Galliano

Itausa (ITSA4 BZ); Attractive NAV Discount, Dividend Yield & Portfolio Diversification Are Positives

Itausa's wide NAV discount, dividend yield of 5%+ and its portfolio diversification into infrastructure are all positives which we expect to lead...

Victor Galliano

Europe, Japan, $ACWI Testing Critical Supports; Rising DXY, Global Sovereign Yields a Major Headwind

Europe $STOXX 50, Japan $TOPIX $Nikkei 225, $ACWI Testing Critical Supports; Rising $DXY, Global Sovereign Yields Remain Major Headwinds for global...

Vermilion Research

Itausa (ITSA4 BZ) – Historically Big NAV Discount Buying Opportunity

Itausa is trading at a HoldCo NAV discount of 25%+, which is rare; in addition, we estimate that Itausa's enhanced NAV discount is a historically...

Victor Galliano

Brazil Banks – Returns Tug of War Between Spreads and Credit Costs, Stick with Banco Do Brasil

Higher benchmark interest rates feed into wider spreads for Brazil banks, and in the returns tug of war between higher spreads and bigger credit...

Victor Galliano

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