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>We lift the lid on the consumer finance arms of ten leading LatAm retailers, providing corporate summaries in this primer on those entities with “skin in the game” of LatAm consumer credit</li>
<li>Our top pick is Mexican department store retailer <a href="https://www.smartkarma.com/entities/27611" target="_blank" data-smartkarma-citation="entities:27611:1">El Puerto de Liverpool SAB de (LIVEPOLC MM)</a> , given its attractive valuations; it is also the third largest issuer of credit cards in Mexico and the portfolio has a relatively low NPL ratio with healthy NPL coverage</li>
<li>Brazilian department store and apparel retailer <a href="https://www.smartkarma.com/entities/28023" target="_blank" data-smartkarma-citation="entities:28023:1">Guararapes Confeccoes SA (GUAR3 BZ)</a> is the second largest private label card issuer in Brazil and an attractive value, we believe, even if in the consumer credit arm its NPL coverage levels are a bit lower than its peers</li>
<li>In Chile, we like the business and geographic focus of <a href="https://www.smartkarma.com/entities/28022" target="_blank" data-smartkarma-citation="entities:28022:1">Ripley Corp SA (RIPLEY CI)</a>, despite Ripley's high debt to equity ratio, and its high return banking business in Chile in particular</li>
<li>
<a href="https://www.smartkarma.com/entities/27954" target="_blank" data-smartkarma-citation="entities:27954:1">MercadoLibre Inc (MELI US)</a> is the leader in LatAm e-commerce, with structural growth potential. It has a fast growing and, we believe, profitable payments operation in MercadoPago and small but high growth potential credit business in MercadoCredito, yet we believe that the current intensifying Brazilian competitive climate and Argentine political and economic outlook are real and near-term headwinds for the share price</li>
</ul>


We lift the lid on the consumer finance arms of ten leading LatAm retailers, providing corporate summaries in this primer on those entities with “skin in the game” of LatAm consumer credit
Our top pick is Mexican department store retailer El Puerto de Liverpool SAB de (LIVEPOLC MM) , given its attractive valuations; it is also the third largest issuer of credit cards in Mexico and the portfolio has a relatively low NPL ratio with healthy NPL coverage
Brazilian department store and apparel retailer Guararapes Confeccoes SA (GUAR3 BZ) is the second largest private label card issuer in Brazil and an attractive value, we believe, even if in the consumer credit arm its NPL coverage levels are a bit lower than its peers
In Chile, we like the business and geographic focus of Ripley Corp SA (RIPLEY CI), despite Ripley's high debt to equity ratio, and its high return banking business in Chile in particular

MercadoLibre Inc (MELI US) is the leader in LatAm e-commerce, with structural growth potential. It has a fast growing and, we believe, profitable payments operation in MercadoPago and small but high growth potential credit business in MercadoCredito, yet we believe that the current intensifying Brazilian competitive climate and Argentine political and economic outlook are real and near-term headwinds for the share price


Banking on Retail: A Primer on The Credit Operations of Leading LatAm Retailers

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>An overview (and output) of our machine learning-driven GEM screening model, which seeks to find the best medium-term long ideas within the top100 stocks in the MSCI GEM Index.</li>
<li>The model is based on 1) a quantitative multifactor screening model, enhanced by two AI Technology-based approaches; 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model.</li>
<li>Developed over the past 3 years, and implemented in its current state for 20 months, the model has a solid real-world alpha-generating performance track record, set out in detail below.</li>
</ul>


An overview (and output) of our machine learning-driven GEM screening model, which seeks to find the best medium-term long ideas within the top100 stocks in the MSCI GEM Index.
The model is based on 1) a quantitative multifactor screening model, enhanced by two AI Technology-based approaches; 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model.
Developed over the past 3 years, and implemented in its current state for 20 months, the model has a solid real-world alpha-generating performance track record, set out in detail below.


<p>This insight provides the output, and an overview of our, machine learning-driven, proprietary GEM screening model, which takes a three-pronged approach to find the best medium-term long ideas within the top100 largest stocks in the MSCI GEM Index. </p>
<p>The model is based on 1) a typical quantitative multifactor screening model, enhanced by two Artificial Intelligence Technology-based approaches using 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model. </p>
<p>This model, which has been developed and tweaked over the past 3 years (and implemented in its current state for 17 months), has a solid real-world performance track record, which I set out in the detail below. </p>
<p>Notable new entrants to the top decile this month include Russian internet company <a href="https://www.smartkarma.com/entities/yandex-nv-a" target="_blank" data-smartkarma-citation="entities:414:1" rel="noopener">Yandex (YNDX US)</a>, Indian IT Services company <a href="https://www.smartkarma.com/entities/hcl-technologies-ltd" target="_blank" data-smartkarma-citation="entities:20025:1" rel="noopener">Hcl Technologies (HCLT IN)</a>, and a return to the top 10 for <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>.</p>
<table class="table table-striped">
<colgroup> <col> <col> <col> <col> <col> </colgroup>
<tbody>
<tr>
<td style="text-align: center; width: 48pt;">rank</td>
<td style="width: 169pt;">Name</td>
<td style="width: 119pt;">Sector</td>
<td style="width: 95pt;">Location</td>
<td style="text-align: center; width: 48pt;">prev.</td>
</tr>
<tr>
<td style="text-align: center;">1</td>
<td>
<a href="https://www.smartkarma.com/entities/lg-household-health-care" target="_blank" data-smartkarma-citation="entities:6501:1" rel="noopener">LG Household &amp; Health Care (051900 KS)</a> </td>
<td>Consumer Staples</td>
<td>Korea (South)</td>
<td style="text-align: center;">12</td>
</tr>
<tr>
<td style="text-align: center;">2</td>
<td>
<a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a> </td>
<td>Communication</td>
<td>China</td>
<td style="text-align: center;">2</td>
</tr>
<tr>
<td style="text-align: center;">3</td>
<td>
<a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a> </td>
<td>Consumer Discretionary</td>
<td>China</td>
<td style="text-align: center;">10</td>
</tr>
<tr>
<td style="text-align: center;">4</td>
<td>
<a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a> </td>
<td>Information Technology</td>
<td>China</td>
<td style="text-align: center;">4</td>
</tr>
<tr>
<td style="text-align: center;">5</td>
<td>
<a href="https://www.smartkarma.com/entities/yandex-nv-a" target="_blank" data-smartkarma-citation="entities:414:1" rel="noopener">Yandex (YNDX US)</a> </td>
<td>Communication</td>
<td>Russian Federation</td>
<td style="text-align: center;">49</td>
</tr>
<tr>
<td style="text-align: center;">6</td>
<td>
<a href="https://www.smartkarma.com/entities/new-oriental-education-technology-group" target="_blank" data-smartkarma-citation="entities:32210:1" rel="noopener">New Oriental Education &amp; Technology Group (9901 HK)</a> </td>
<td>Consumer Discretionary</td>
<td>China</td>
<td style="text-align: center;">1</td>
</tr>
<tr>
<td style="text-align: center;">7</td>
<td>
<a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a> </td>
<td>Information Technology</td>
<td>Taiwan</td>
<td style="text-align: center;">16</td>
</tr>
<tr>
<td style="text-align: center;">8</td>
<td>
<a href="https://www.smartkarma.com/entities/al-rajhi-bank" target="_blank" data-smartkarma-citation="entities:27038:1" rel="noopener">Al Rajhi Bank (RJHI AB)</a> </td>
<td>Financials</td>
<td>Saudi Arabia</td>
<td style="text-align: center;">33</td>
</tr>
<tr>
<td style="text-align: center;">9</td>
<td>
<a href="https://www.smartkarma.com/entities/magazine-luiza-sa" target="_blank" data-smartkarma-citation="entities:27676:1" rel="noopener">Magazine Luiza SA (MGLU3 BZ)</a> </td>
<td>Consumer Discretionary</td>
<td>Brazil</td>
<td style="text-align: center;">15</td>
</tr>
<tr>
<td style="text-align: center;">10</td>
<td>
<a href="https://www.smartkarma.com/entities/hcl-technologies-ltd" target="_blank" data-smartkarma-citation="entities:20025:1" rel="noopener">Hcl Technologies (HCLT IN)</a> </td>
<td>Information Technology</td>
<td>India</td>
<td style="text-align: center;">83</td>
</tr>
<tr>
<td colspan="5" style="text-align: left;">Source: FactSet financial data and analytics, my estimates and calculations, Tensorflow, Keras, Google Colaboratory, pandas</td>
</tr>
</tbody>
</table>
<p><em>As usual, please feel free to reach out for the full output table, any questions, clarifications needed or suggestions.</em></p>

This insight provides the output, and an overview of our, machine learning-driven, proprietary GEM screening model, which takes a three-pronged approach to find the best medium-term long ideas within the top100 largest stocks in the MSCI GEM Index. 
The model is based on 1) a typical quantitative multifactor screening model, enhanced by two Artificial Intelligence Technology-based approaches using 2) a Deep Neural Network model, and 3) a Recurrent Neural Network model. 
This model, which has been developed and tweaked over the past 3 years (and implemented in its current state for 17 months), has a solid real-world performance track record, which I set out in the detail below. 
Notable new entrants to the top decile this month include Russian internet company Yandex (YNDX US), Indian IT Services company Hcl Technologies (HCLT IN), and a return to the top 10 for TSMC (2330 TT).

      


rank
Name
Sector
Location
prev.


1

LG Household &amp; Health Care (051900 KS) 
Consumer Staples
Korea (South)
12


2

NetEase (9999 HK) 
Communication
China
2


3

JD.com Inc. (9618 HK) 
Consumer Discretionary
China
10


4

Xiaomi Corp (1810 HK) 
Information Technology
China
4


5

Yandex (YNDX US) 
Communication
Russian Federation
49


6

New Oriental Education &amp; Technology Group (9901 HK) 
Consumer Discretionary
China
1


7

TSMC (2330 TT) 
Information Technology
Taiwan
16


8

Al Rajhi Bank (RJHI AB) 
Financials
Saudi Arabia
33


9

Magazine Luiza SA (MGLU3 BZ) 
Consumer Discretionary
Brazil
15


10

Hcl Technologies (HCLT IN) 
Information Technology
India
83


Source: FactSet financial data and analytics, my estimates and calculations, Tensorflow, Keras, Google Colaboratory, pandas



As usual, please feel free to reach out for the full output table, any questions, clarifications needed or suggestions.

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/27676" target="_blank" data-smartkarma-citation="entities:27676:1">Magazine Luiza SA (MGLU3 BZ)</a> is a general consumer goods retailer through physical and virtual stores, as well as e-commerce. It also grants credit and provides extended warranties for its products, and has its own e-commerce marketplace with 36% of sales executed via the e-commerce channel in 2018</li>
<li>Its consumer credit operation, Luizacred, is a 50-50 joint venture with Banco Itaú Unibanco. It also has a small insurance operation Luizaseg, a 50-50 joint venture with Cardif, part of the BNP Paribas group. Luizacred’s loan portfolio came to BRL8.4bn (USD2.2bn) at YE 2018, with BRL8.15bn in credit card exposure on its base of 4.25m cards</li>
<li>We apply a bear (13x) and bull (19x) range of historic (2018A) PE multiples for Luizacred, based on Brazil GAAP net earnings. We estimate that this values Magalu’s share of the consumer credit and insurance businesses in a range of USD345-504m, equivalent to a range of 4%-6% of Magalu’s market cap</li>
<li>Although we see better value equities as alternatives, and other retailers with more meaningful consumer finance arms, we believe that Magalu, as a digital disrupter in Brazilian retail and consumer finance in the slipstream of <a href="https://www.smartkarma.com/entities/24470" target="_blank" data-smartkarma-citation="entities:24470:1">B2W Cia Digital (BTOW3 BZ)</a> , is another name worth watching</li>
</ul>



Magazine Luiza SA (MGLU3 BZ) is a general consumer goods retailer through physical and virtual stores, as well as e-commerce. It also grants credit and provides extended warranties for its products, and has its own e-commerce marketplace with 36% of sales executed via the e-commerce channel in 2018
Its consumer credit operation, Luizacred, is a 50-50 joint venture with Banco Itaú Unibanco. It also has a small insurance operation Luizaseg, a 50-50 joint venture with Cardif, part of the BNP Paribas group. Luizacred’s loan portfolio came to BRL8.4bn (USD2.2bn) at YE 2018, with BRL8.15bn in credit card exposure on its base of 4.25m cards
We apply a bear (13x) and bull (19x) range of historic (2018A) PE multiples for Luizacred, based on Brazil GAAP net earnings. We estimate that this values Magalu’s share of the consumer credit and insurance businesses in a range of USD345-504m, equivalent to a range of 4%-6% of Magalu’s market cap
Although we see better value equities as alternatives, and other retailers with more meaningful consumer finance arms, we believe that Magalu, as a digital disrupter in Brazilian retail and consumer finance in the slipstream of B2W Cia Digital (BTOW3 BZ) , is another name worth watching


Magazine Luiza (Magalu); Another Contender in Brazilian E-Commerce, Sound JV in Consumer Finance

Brazil

Magazine Luiza S.A. is a prominent Brazilian retail company operating through an extensive network of physical stores, e-commerce platforms, and a SuperApp. The company sells a wide range of consumer goods including home appliances, electronics, furniture, cosmetics, and fashion products. Beyond retail, it also offers financial services, insurance, and consortium management. Magazine Luiza S.A. was founded in 1957 and is headquartered in Franca, São Paulo, Brazil.

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Magazine Luiza (MGLU3 BR)

Banking on Retail: A Primer on The Credit Operations of Leading LatAm Retailers

We lift the lid on the consumer finance arms of ten leading LatAm retailers, providing corporate summaries in this primer on those entities with...

Victor Galliano

Screening for GEMs: January 2022

This insight provides an overview of our, machine learning-driven, proprietary GEM screening model, based on a Multifactor model, a Deep Neural...

Wium Malan, CFA

Screening for GEMs: November 2021

This insight provides an overview of our, machine learning-driven, proprietary GEM screening model, based on a Multifactor model, a Deep Neural...

Wium Malan, CFA

Magazine Luiza (Magalu); Another Contender in Brazilian E-Commerce, Sound JV in Consumer Finance

Magazine Luiza SA (MGLU3 BZ) is a general consumer goods retailer through physical and virtual stores, as well as e-commerce. It also grants...

Victor Galliano

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52-week Range

Market Cap (USDm)

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