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>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

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/tyro-payments-ltd" target="_blank" data-smartkarma-citation="entities:28393:1" rel="noopener">Tyro Payments (TYR AU)</a> rejected an indicative proposal from the Potentia consortium at A$1.27 per share as it was highly conditional and materially undervalued the business.</li>
<li>Grok, the largest shareholder will vote for a Potentia scheme unless there is a rival scheme which is A$0.25 per share higher than the value of the Potentia proposal.</li>
<li>Potentia's move puts Tyro in play, and Grok’s involvement will force the Board to get an improved offer and/or flush out a competing bidder. There is another round to go.</li>
</ul>



Tyro Payments (TYR AU) rejected an indicative proposal from the Potentia consortium at A$1.27 per share as it was highly conditional and materially undervalued the business.
Grok, the largest shareholder will vote for a Potentia scheme unless there is a rival scheme which is A$0.25 per share higher than the value of the Potentia proposal.
Potentia's move puts Tyro in play, and Grok’s involvement will force the Board to get an improved offer and/or flush out a competing bidder. There is another round to go.


Tyro in Play as It Rejects Potentia’s A$1.27 Offer

Equity Bottom-Up

<ul>
<li>Since our March-end report, our shorts – especially Kakao Pay – worked better than our longs, given the continuing turbulent conditions; Santander’s offer for Getnet minorities signals a specific opportunity</li>
<li>We still favour Mastercard in the megacaps, and we stick with PagSeguro and Nexi despite both having disappointed; Cielo has been a strong performer, but we would not chase it</li>
<li>Among our shorts, we remain negative on DLocal, given its very demanding valuations, and we still see Kakao Pay to be fundamentally over-valued; we reintroduce Paytm to the shorts list</li>
</ul>


Since our March-end report, our shorts – especially Kakao Pay – worked better than our longs, given the continuing turbulent conditions; Santander’s offer for Getnet minorities signals a specific opportunity
We still favour Mastercard in the megacaps, and we stick with PagSeguro and Nexi despite both having disappointed; Cielo has been a strong performer, but we would not chase it
Among our shorts, we remain negative on DLocal, given its very demanding valuations, and we still see Kakao Pay to be fundamentally over-valued; we reintroduce Paytm to the shorts list


Payment Companies Screens – More Constructive Market Signals or a Bear Market Rally?

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<ul>
<li>We are increasingly concerned about Kakao Bank which has been losing market share to other leading Internet banks in Korea (especially to Toss bank). </li>
<li>We are also concerned about the Kakao Bank approving greater amount of loans to customers with weak to moderate credit ratings who have been rejected loans from commercial banks. </li>
<li>Our base case valuation of Kakao Bank is market cap of 16.4 trillion won or price of 34,504 won per share, which represents 16.5% lower than the current share price.</li>
</ul>


We are increasingly concerned about Kakao Bank which has been losing market share to other leading Internet banks in Korea (especially to Toss bank). 
We are also concerned about the Kakao Bank approving greater amount of loans to customers with weak to moderate credit ratings who have been rejected loans from commercial banks. 
Our base case valuation of Kakao Bank is market cap of 16.4 trillion won or price of 34,504 won per share, which represents 16.5% lower than the current share price.


Kakao Bank: Market Share Losses to Other Internet Banks & More Loans to Less Creditworthy Customers

<ul>
<li>Our negative recommendations from December – especially Paytm – worked better than our positive ones, given 1Q22 market conditions; we see much value in payment companies but we remain selective</li>
<li>Based on our screens, we continue to favour Mastercard in the megacaps, we stick with PagSeguro and Getnet, adding Nexi which looks very oversold, despite its fundamental headwinds</li>
<li>We take Paytm off the sell list, but we remain negative on DLocal on its very demanding valuations, and we add Kakao Pay to the negative list</li>
</ul>


Our negative recommendations from December – especially Paytm – worked better than our positive ones, given 1Q22 market conditions; we see much value in payment companies but we remain selective
Based on our screens, we continue to favour Mastercard in the megacaps, we stick with PagSeguro and Getnet, adding Nexi which looks very oversold, despite its fundamental headwinds
We take Paytm off the sell list, but we remain negative on DLocal on its very demanding valuations, and we add Kakao Pay to the negative list


Payment Companies – Thoughts on Screen Snapshots 1Q22

Brazil

PagSeguro Digital Ltd. provides financial technology services. The Company offers multiple digital payment solutions, in-person payments via point of sales devices, and prepaid cards services. Pagseguro Digital serves clients in Brazil and the United States.

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Pagseguro Digital Ltd (PAGS US)

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

Tyro in Play as It Rejects Potentia’s A$1.27 Offer

Potentia's move puts Tyro in play, and Grok’s involvement will force the Board to get an improved offer and/or flush out a competing bidder. There...

Arun George

Payment Companies Screens – More Constructive Market Signals or a Bear Market Rally?

In payments, we stick with our longs on Mastercard for its quality, PagSeguro and Nexi for value; we reintroduce Paytm to the shorts, adding it to...

Victor Galliano

Payment Companies – Thoughts on Screen Snapshots 1Q22

We favour Mastercard, PagSeguro and Getnet, adding Nexi which looks very oversold; we take Paytm off the sell list, but stay negative on DLocal due...

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

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

Tyro in Play as It Rejects Potentia’s A$1.27 Offer

Potentia's move puts Tyro in play, and Grok’s involvement will force the Board to get an improved offer and/or flush out a competing bidder. There...

Arun George

Payment Companies Screens – More Constructive Market Signals or a Bear Market Rally?

In payments, we stick with our longs on Mastercard for its quality, PagSeguro and Nexi for value; we reintroduce Paytm to the shorts, adding it to...

Victor Galliano

Kakao Bank: Market Share Losses to Other Internet Banks & More Loans to Less Creditworthy Customers

Kakao Bank is suffering from market share losses to other Internet banks & more loans to less creditworthy customers. We expect further downside...

Douglas Kim

Payment Companies – Thoughts on Screen Snapshots 1Q22

We favour Mastercard, PagSeguro and Getnet, adding Nexi which looks very oversold; we take Paytm off the sell list, but stay negative on DLocal due...

Victor Galliano