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

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>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

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

<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

<ul>
<li>Itausa is trading at a stated 24.4% discount to the HoldCo’s NAV, with the discount having widened sharply since last month; we turn positive on Itausa</li>
<li>We believe that the discount under-estimates the stated NAV; separate from Itausa’s stake in XP, Itaú Unibanco, in which Itausa holds a 37.2% stake, has a direct 11.36% XP stake</li>
<li>Adding its indirect XP stake share to Itausa’s NAV implies a discount of 26.1%; since December 2008, only on 11% of the month end datapoints has Itausa’s discount exceeded 25%</li>
</ul>


Itausa is trading at a stated 24.4% discount to the HoldCo’s NAV, with the discount having widened sharply since last month; we turn positive on Itausa
We believe that the discount under-estimates the stated NAV; separate from Itausa’s stake in XP, Itaú Unibanco, in which Itausa holds a 37.2% stake, has a direct 11.36% XP stake
Adding its indirect XP stake share to Itausa’s NAV implies a discount of 26.1%; since December 2008, only on 11% of the month end datapoints has Itausa’s discount exceeded 25%


Itausa (ITSA4 BZ) – Historically Wide, and Potentially Understated, NAV Discount

Brazil

Itausa SA operates as a investment holding company. The Company, through its subsidiaries, invests in companies in such areas as the financial, as well as the wood paneling, ceramic and metal sanitary, ceramic coatings, clothing, footwear, and gaspipelines. Itausa serves clients worldwide.

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Itausa (ITSA4 BZ)

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

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

Itausa (ITSA4 BZ) – Historically Wide, and Potentially Understated, NAV Discount

Itausa's NAV discount of c25% drives our positive view; with Itausa's indirect XP stake share, the discount reaches 26%; over 162 monthly...

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

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

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

Itausa (ITSA4 BZ) – Historically Wide, and Potentially Understated, NAV Discount

Itausa's NAV discount of c25% drives our positive view; with Itausa's indirect XP stake share, the discount reaches 26%; over 162 monthly...

Victor Galliano