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>We stay negative on Nubank, even after the recent share correction; our rationale is tough competition, especially in Mexico, and worsening credit quality to remain a key risk in Brazil</li>
<li>We believe that the fundamental outlook for Bradesco should improve further, supported by its strong insurance operations; conservatively, we estimate insurance could account for two thirds of group value</li>
<li>Our neutral on Banco do Brasil is due largely to heightened political risk; holding company Itausa is the best indirect vehicle through which to gain equity exposure in Banco Itaú</li>
</ul>


We stay negative on Nubank, even after the recent share correction; our rationale is tough competition, especially in Mexico, and worsening credit quality to remain a key risk in Brazil
We believe that the fundamental outlook for Bradesco should improve further, supported by its strong insurance operations; conservatively, we estimate insurance could account for two thirds of group value
Our neutral on Banco do Brasil is due largely to heightened political risk; holding company Itausa is the best indirect vehicle through which to gain equity exposure in Banco Itaú


Brazil Banks – Buy Bradesco for Value and Improving Returns, Nubank Is Stretched on Valuations

Event-Driven

<ul>
<li>Itausa’s equity value is predominantly composed of its core holding stake in big cap Latin American bank Itaú Unibanco whilst it has actively reduced its exposure to wealth tech XP</li>
<li>Yet these two financials together account for over 90% of Itausa’s total equity value, with Itaú accounting for almost the entirety of that value</li>
<li>Itausa is trading at a HoldCo NAV discount of over 25%, which is historically high; currently, Itausa is an excellent vehicle that provides indirect and discounted exposure to Itaú</li>
</ul>


Itausa’s equity value is predominantly composed of its core holding stake in big cap Latin American bank Itaú Unibanco whilst it has actively reduced its exposure to wealth tech XP
Yet these two financials together account for over 90% of Itausa’s total equity value, with Itaú accounting for almost the entirety of that value
Itausa is trading at a HoldCo NAV discount of over 25%, which is historically high; currently, Itausa is an excellent vehicle that provides indirect and discounted exposure to Itaú


Itausa (ITSA4 BZ) – Big NAV Discount Provides Attractive Indirect Exposure to Brazilian Bank Itaú

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Quantitative Analysis

<ul>
<li>The 200 largest weighted companies in the GEM index reported average EPS growth of +14.2%y/y for 4Q22-to-date, slightly down from the +15.7% reported for 3Q22.</li>
<li>Only 54% of companies delivered positive sales surprises, and only 49% delivered positive EPS surprises, significantly down from the trend seen over the past 2 years.</li>
<li>Historically, there has been a significant difference in relative share price performance between the largest positive versus negative surprise generators, for 3 months after the reporting date.</li>
</ul>


The 200 largest weighted companies in the GEM index reported average EPS growth of +14.2%y/y for 4Q22-to-date, slightly down from the +15.7% reported for 3Q22.
Only 54% of companies delivered positive sales surprises, and only 49% delivered positive EPS surprises, significantly down from the trend seen over the past 2 years.
Historically, there has been a significant difference in relative share price performance between the largest positive versus negative surprise generators, for 3 months after the reporting date.


Global Emerging Markets: Reporting Season Summary, 4Q2022

<ul>
<li>After last year, XP screens better versus its global wealth manager and broker peer group on most valuation metrics, yet we remain concerned about share overhang and the competitive climate</li>
<li>Itausa’s NAV discount is narrow, a potential sell signal; Itausa has historically provided discounted exposure to its second largest holding XP, but its XP exposure is now heavily diluted</li>
<li>The global wealth manager screen indicates that UK wealth manager Quilter stands out for its value attributes, especially on PE, market capitalisation to revenue and AUM to market capitalisation ratios</li>
</ul>


After last year, XP screens better versus its global wealth manager and broker peer group on most valuation metrics, yet we remain concerned about share overhang and the competitive climate
Itausa’s NAV discount is narrow, a potential sell signal; Itausa has historically provided discounted exposure to its second largest holding XP, but its XP exposure is now heavily diluted
The global wealth manager screen indicates that UK wealth manager Quilter stands out for its value attributes, especially on PE, market capitalisation to revenue and AUM to market capitalisation ratios


XP (XP US) – Despite the Share Price De-Rating, Better Value to Be Found Elsewhere

<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

Brazil

Itaúsa is a Brazilian multinational conglomerate holding company engaged in long-term value creation through active ownership of a concentrated portfolio of operating businesses. The company's main activities include investments in financial services, through Itaú Unibanco, and industrial business areas such as building materials, consumer goods, sanitation, and energy. It was founded in 1966 and is headquartered in São Paulo, Brazil.

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Itaúsa (ITSA4 BR)

Brazil Banks – Buy Bradesco for Value and Improving Returns, Nubank Is Stretched on Valuations

Negative on Nubank due to tough competition and credit risks, bullish on Bradesco with its strong insurance arm, neutral on Banco do Brasil due to...

Victor Galliano

Itausa (ITSA4 BZ) – Big NAV Discount Provides Attractive Indirect Exposure to Brazilian Bank Itaú

Itausa's equity value is mainly derived from its stake in Itaú Unibanco, with limited exposure to XP; Itausa trades at a big discount, making it...

Victor Galliano

Global Emerging Markets: Reporting Season Summary, 4Q2022

In this quarterly insight, we analyse recent GEM reporting trends with reference to Sales and EPS growth, size and percentage of positive...

Wium Malan, CFA

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

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Brazil Banks – Buy Bradesco for Value and Improving Returns, Nubank Is Stretched on Valuations

​Negative on Nubank due to tough competition and credit risks, bullish on Bradesco with its strong insurance arm, neutral on Banco do Brasil due to...

Victor Galliano

Itausa (ITSA4 BZ) – Big NAV Discount Provides Attractive Indirect Exposure to Brazilian Bank Itaú

​Itausa's equity value is mainly derived from its stake in Itaú Unibanco, with limited exposure to XP; Itausa trades at a big discount, making it...

Victor Galliano

Global Emerging Markets: Reporting Season Summary, 4Q2022

In this quarterly insight, we analyse recent GEM reporting trends with reference to Sales and EPS growth, size and percentage of positive...

Wium Malan, CFA

XP (XP US) – Despite the Share Price De-Rating, Better Value to Be Found Elsewhere

XP remains at risk of downgrades for consensus estimates and share overhang is a valid concern; Itausa, historically a vehicle for diluted XP...

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

Negative on Nubank due to tough competition and credit risks, bullish on Bradesco with its strong insurance arm, neutral on Banco do Brasil due to...

Itausa's equity value is mainly derived from its stake in Itaú Unibanco, with limited exposure to XP; Itausa trades at a big discount, making it...