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>
<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> concluded and priced its secondary share offering equivalent to 4.6% of total shares outstanding</li>
<li>We believe that the offering has weighed on the share price since its announcement in August</li>
<li>The last two quarters' results show that Banco do Brasil is improving its ROE and we expect it to also build core capital in H219</li>
<li>Its 49.99% affiliate, Banco Votorantim, is preparing for its IPO potentially in 2020, which would provide Banco do Brasil  with an exit, allowing it to free up capital and to further boost ROE</li>
<li>We expect Banco do Brasil to re-rate and its PBV ratio discount to narrow with those of its core peers, <a href="https://www.smartkarma.com/entities/itau-unibanco-holding-sa-9d47d196-e503-471b-a84e-ca4401033062" target="_blank" data-smartkarma-citation="entities:24550:1" rel="noopener">Itau Unibanco Holding Sa (ITUB4 BZ)</a> and <a href="https://www.smartkarma.com/entities/banco-bradesco-sa" target="_blank" data-smartkarma-citation="entities:24569:1" rel="noopener">Banco Bradesco Sa (BBDC4 BZ)</a>
</li>
<li>We see potential for at least a 20% re-rating in Banco do Brasil shares on a six month view, based on a tighter PBV ratio discount</li>
<li>Risks to our thesis are Banco do Brasil's inability to raise ROE due to margin pressure, sticky costs and higher cost of risk, as well as headwinds in core capital build from faster than expected loan growth</li>
</ul>



Banco Do Brasil Sa (BBAS3 BZ) concluded and priced its secondary share offering equivalent to 4.6% of total shares outstanding
We believe that the offering has weighed on the share price since its announcement in August
The last two quarters' results show that Banco do Brasil is improving its ROE and we expect it to also build core capital in H219
Its 49.99% affiliate, Banco Votorantim, is preparing for its IPO potentially in 2020, which would provide Banco do Brasil  with an exit, allowing it to free up capital and to further boost ROE
We expect Banco do Brasil to re-rate and its PBV ratio discount to narrow with those of its core peers, Itau Unibanco Holding Sa (ITUB4 BZ) and Banco Bradesco Sa (BBDC4 BZ)

We see potential for at least a 20% re-rating in Banco do Brasil shares on a six month view, based on a tighter PBV ratio discount
Risks to our thesis are Banco do Brasil's inability to raise ROE due to margin pressure, sticky costs and higher cost of risk, as well as headwinds in core capital build from faster than expected loan growth


Banco Do Brasil (BBAS3 BZ): Secondary Share Issue Done, Value and Fundamentals to Drive Re-Rating

<ul>
<li>
<a href="https://www.smartkarma.com/entities/itausa-investimentos-itau-pr" target="_blank" data-smartkarma-citation="entities:24513:1" rel="noopener">Itausa-Investimentos Itau-Pr (ITSA4 BZ)</a>'s NAV discount has narrowed since our initiation in January 2019 from 24% to 18% currently, outperforming its core investment <a href="https://www.smartkarma.com/entities/itau-unibanco-holding-sa-9d47d196-e503-471b-a84e-ca4401033062" target="_blank" data-smartkarma-citation="entities:24550:1" rel="noopener">Itau Unibanco Holding Sa (ITUB4 BZ)</a> </li>
<li>We estimate that Itausa has delivered an annualized total return of c15% in local currency, driven mainly by a dividend yield of 9%+, since our initation</li>
<li>Despite the attractive dividend yield, we believe total returns could be limited going forward, and recommend investors to lock in gains; Itausa's tightest NAV discount over the last 10 years was 16% in December 2011</li>
<li>Itausa's is part of the consortium that is in the process of acquiring Liquigas, the liquified gas distribution company, that will increasingly diversify its investment portfolio but we believe that the consortium is paying a full price </li>
<li>The main risk to our thesis would be a rally in Brazilian banks and, particularly, in <a href="https://www.smartkarma.com/entities/itau-unibanco-holding-sa-9d47d196-e503-471b-a84e-ca4401033062" target="_blank" data-smartkarma-citation="entities:24550:1" rel="noopener">Itau Unibanco Holding Sa (ITUB4 BZ),</a> resulting in Itausa's further re-rating</li>
</ul>



Itausa-Investimentos Itau-Pr (ITSA4 BZ)'s NAV discount has narrowed since our initiation in January 2019 from 24% to 18% currently, outperforming its core investment Itau Unibanco Holding Sa (ITUB4 BZ) 
We estimate that Itausa has delivered an annualized total return of c15% in local currency, driven mainly by a dividend yield of 9%+, since our initation
Despite the attractive dividend yield, we believe total returns could be limited going forward, and recommend investors to lock in gains; Itausa's tightest NAV discount over the last 10 years was 16% in December 2011
Itausa's is part of the consortium that is in the process of acquiring Liquigas, the liquified gas distribution company, that will increasingly diversify its investment portfolio but we believe that the consortium is paying a full price 
The main risk to our thesis would be a rally in Brazilian banks and, particularly, in Itau Unibanco Holding Sa (ITUB4 BZ), resulting in Itausa's further re-rating


Itausa (ITSA4 BZ) - Take Profits on Narrowing NAV Discount

<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

<ul>
<li>Brazil's pension reform agenda moves closer to approval, with  its passage through the special commission of the lower house last week</li>
<li>We expect the Chamber of Deputies vote to be a positive one this week, as the voting intention indications seem to be constructive</li>
<li>The passage of pension reform is set to be followed with other economic reforms, such as tax code reform and an accelerated privatization program</li>
<li>Brazilian equities, especially blue chips, have re-rated and we think there is more to come, although in banks we would be selective</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> stands out among the Brazilian big-cap banks, based on its attractive valuations, improving ROE and its potential to improve its CET1 ratio through non-core disposals</li>
</ul>


Brazil's pension reform agenda moves closer to approval, with  its passage through the special commission of the lower house last week
We expect the Chamber of Deputies vote to be a positive one this week, as the voting intention indications seem to be constructive
The passage of pension reform is set to be followed with other economic reforms, such as tax code reform and an accelerated privatization program
Brazilian equities, especially blue chips, have re-rated and we think there is more to come, although in banks we would be selective
We believe that Banco Do Brasil Sa (BBAS3 BZ) stands out among the Brazilian big-cap banks, based on its attractive valuations, improving ROE and its potential to improve its CET1 ratio through non-core disposals


Brazilian Pension Reform Moves Ahead; We Stick with Our Positive View on Banco Do Brasil

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<ul>
<li>
<a href="https://www.smartkarma.com/entities/24513" target="_blank" data-smartkarma-citation="entities:24513:1">Itausa-Investimentos Itau-Pr (ITSA4 BZ)</a> is the main indirect vehicle through which to gain discounted equity exposure to premium ROE-generating Brazilian bank, <a href="https://www.smartkarma.com/entities/24550" target="_blank" data-smartkarma-citation="entities:24550:1">Itau Unibanco Holding Sa (ITUB4 BZ)</a>.</li>
<li>Itausa trades at a 24% discount to its NAV, with Itau Unibanco accounting for 91% of the asset value of the holding.</li>
<li>The current NAV discount is close to the 10-year high of 28%, and wider than the 10-year average discount of 21% and the 10-year low of 16%.</li>
</ul>



Itausa-Investimentos Itau-Pr (ITSA4 BZ) is the main indirect vehicle through which to gain discounted equity exposure to premium ROE-generating Brazilian bank, Itau Unibanco Holding Sa (ITUB4 BZ).
Itausa trades at a 24% discount to its NAV, with Itau Unibanco accounting for 91% of the asset value of the holding.
The current NAV discount is close to the 10-year high of 28%, and wider than the 10-year average discount of 21% and the 10-year low of 16%.


Itausa: Discounted Access to Premium Quality Itau

Brazil

Itaú Unibanco Holding S.A. is a Brazilian multinational financial conglomerate and the largest bank in Latin America by market value. It offers a comprehensive suite of financial products and services, including retail and wholesale banking, investment banking, asset management, and insurance to individual and corporate clients. The company is headquartered in São Paulo, Brazil, and traces its origins to 1924, with the merger of Banco Itaú and Unibanco forming the current entity in 2008.

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Itau Unibanco (ITUB4 BR)

Itausa (ITSA4 BZ) - Take Profits on Narrowing NAV Discount

Itausa-Investimentos Itau-Pr (ITSA4 BZ)'s NAV discount has narrowed since our initiation in January 2019 from 24% to 18% currently, outperforming...

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

Brazilian Pension Reform Moves Ahead; We Stick with Our Positive View on Banco Do Brasil

Brazil's pension reform agenda moves closer to approval, with its passage through the special commission of the lower house last week We expect...

Victor Galliano

Itausa: Discounted Access to Premium Quality Itau

Itausa-Investimentos Itau-Pr (ITSA4 BZ) is the main indirect vehicle through which to gain discounted equity exposure to premium ROE-generating...

Boost Research

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Banco Do Brasil (BBAS3 BZ): Secondary Share Issue Done, Value and Fundamentals to Drive Re-Rating

Banco Do Brasil Sa (BBAS3 BZ) concluded and priced its secondary share offering equivalent to 4.6% of total shares outstanding We believe that...

Victor Galliano

Itausa (ITSA4 BZ) - Take Profits on Narrowing NAV Discount

Itausa-Investimentos Itau-Pr (ITSA4 BZ)'s NAV discount has narrowed since our initiation in January 2019 from 24% to 18% currently, outperforming...

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

Brazilian Pension Reform Moves Ahead; We Stick with Our Positive View on Banco Do Brasil

Brazil's pension reform agenda moves closer to approval, with its passage through the special commission of the lower house last week We expect...

Victor Galliano

Itausa: Discounted Access to Premium Quality Itau

Itausa-Investimentos Itau-Pr (ITSA4 BZ) is the main indirect vehicle through which to gain discounted equity exposure to premium ROE-generating...

Boost Research