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>Among bigger cap GEM banks, we pick four longs and two shorts as our conviction calls for 2023</li>
<li>Our core buys are Bank Mandiri from Indonesia, Hana Financial from South Korea, China Construction Bank and BanColombia; we also have a special mentions category for Banco Itau and Nubank</li>
<li>Our key sells are ICICI Bank from India and digital bank Jago from Indonesia</li>
</ul>


Among bigger cap GEM banks, we pick four longs and two shorts as our conviction calls for 2023
Our core buys are Bank Mandiri from Indonesia, Hana Financial from South Korea, China Construction Bank and BanColombia; we also have a special mentions category for Banco Itau and Nubank
Our key sells are ICICI Bank from India and digital bank Jago from Indonesia


<ul>
<li>Among the EM digital banks covered, we remain negative on Inter and continue to see Bank Jago as an over-valued growth play; we are neutral on Nubank and Kakaobank</li>
<li>Client penetration is improving, yet digital banks, with the exception of Nubank, need to achieve better product penetration to enhance digital efficiency and better leverage off their lower cost bases</li>
<li>Neobanks’ other key hurdles to enhanced profitability are delinquency and cost of risk charges along with increased regulatory risk; high capital absorption from fast loan growth is another investor concern</li>
</ul>


Among the EM digital banks covered, we remain negative on Inter and continue to see Bank Jago as an over-valued growth play; we are neutral on Nubank and Kakaobank
Client penetration is improving, yet digital banks, with the exception of Nubank, need to achieve better product penetration to enhance digital efficiency and better leverage off their lower cost bases
Neobanks’ other key hurdles to enhanced profitability are delinquency and cost of risk charges along with increased regulatory risk; high capital absorption from fast loan growth is another investor concern


EM Digital Banks Review – Inter and Bank Jago in the Negative Spotlight

<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?

<ul>
<li>Brazil caps interchange fees on prepaid and debit cards, as from 1st April 2023, limiting revenues for Brazilian card issuers; Nubank and Inter seem most exposed, less so PagSeguro</li>
<li>We expect that Brazil fintechs StoneCo and Cielo, with their small card issuance operations, should be broadly unaffected</li>
<li>Nubank’s prospective revenue hit is more than 5%, Inter close to 5% and PagSeguro’s hit at 1-2%; we remain negative on Nubank, turn cautious on Inter, but find PagSeguro attractive</li>
</ul>


Brazil caps interchange fees on prepaid and debit cards, as from 1st April 2023, limiting revenues for Brazilian card issuers; Nubank and Inter seem most exposed, less so PagSeguro
We expect that Brazil fintechs StoneCo and Cielo, with their small card issuance operations, should be broadly unaffected
Nubank’s prospective revenue hit is more than 5%, Inter close to 5% and PagSeguro’s hit at 1-2%; we remain negative on Nubank, turn cautious on Inter, but find PagSeguro attractive


Brazil Fintech: New Cap on Card Interchange Fees, Nubank and Inter Look Most Exposed

<ul>
<li>Softbank has invested USD7bn in tech throughout Latin America since 3Q 2019, with 40% dedicated to fintech; we focus in on the listed fintech holdings, specifically Nubank and Banco Inter</li>
<li>In the 2Q22 market sell-off, we estimate that Softbank is holding 55+% unrealized losses in Nubank, with a similar level of losses on its more recent Banco Inter investments</li>
<li>These two neobanks have good client penetration but face profitability challenges; as a key shareholder, Softbank could push for transformative Nu-Inter M&amp;A, otherwise Softbank could seek to exit these investments</li>
</ul>


Softbank has invested USD7bn in tech throughout Latin America since 3Q 2019, with 40% dedicated to fintech; we focus in on the listed fintech holdings, specifically Nubank and Banco Inter
In the 2Q22 market sell-off, we estimate that Softbank is holding 55+% unrealized losses in Nubank, with a similar level of losses on its more recent Banco Inter investments
These two neobanks have good client penetration but face profitability challenges; as a key shareholder, Softbank could push for transformative Nu-Inter M&amp;A, otherwise Softbank could seek to exit these investments


Softbank (9984 JP) In Latin America: Focus on Fintechs and the LatAm Neobanks

Brazil

Nu Holdings Ltd. is a Brazilian financial technology firm that offers digital banking services, including credit and debit cards, mobile payment solutions, and investment platforms. The company provides spending, transactional, savings, investing, borrowing, and protection solutions for individuals and businesses across Brazil, Mexico, and Colombia. Nu Holdings Ltd. was founded in 2013 and is headquartered in São Paulo, Brazil.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Nu Holdings (NU US)

GEM Banks; Conviction Calls for 2023

Our core buys are Bank Mandiri, Hana Financial, China Construction Bank and BanColombia; we also have special mention for Banco Itau and Nubank;...

Victor Galliano

EM Digital Banks Review – Inter and Bank Jago in the Negative Spotlight

EM digital banks need to deliver better product penetration on the back of client penetration to enhance returns; we stay negative on Inter and...

Victor Galliano

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

Brazil Fintech: New Cap on Card Interchange Fees, Nubank and Inter Look Most Exposed

Regulatory pressure, due to the interchange fee cap, worsens the revenue outlook for Nubank especially, as well as that of Inter; we see...

Victor Galliano

Softbank (9984 JP) In Latin America: Focus on Fintechs and the LatAm Neobanks

LatAm equity investments have added to Softbank's total equity value and rose to a 5% share in March; we expect this to go sharply into reverse at...

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)