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>The planned eToro IPO via SPAC merger with FinTech V was terminated in early July, due delayed regulatory process as well as poor market conditions</li>
<li>The now defunct SPAC deal had implied an eToro valuation in excess of USD10bn; post failed SPAC deal, its latest funding round implies a valuation range of USD5bn to USD6bn</li>
<li>Softbank made its eToro investment through the Vision Fund 2 in 4Q 2020; Softbank had been counting on the SPAC deal with FinTech V as its partial eToro exit strategy</li>
</ul>


The planned eToro IPO via SPAC merger with FinTech V was terminated in early July, due delayed regulatory process as well as poor market conditions
The now defunct SPAC deal had implied an eToro valuation in excess of USD10bn; post failed SPAC deal, its latest funding round implies a valuation range of USD5bn to USD6bn
Softbank made its eToro investment through the Vision Fund 2 in 4Q 2020; Softbank had been counting on the SPAC deal with FinTech V as its partial eToro exit strategy


Softbank (9984 JP) – EToro’s Funding “Down Round”

Event-Driven

<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

<ul>
<li>Itaú Unibanco’s acquisition of an 11.36% stake in XP in April is no strategic move; it is a contractual obligation that remained, after the regulator blocked Itaú’s acquisition plans</li>
<li>This adds to the existing overhang in XP shares, given that fellow XP shareholder Itausa deems its 11.5% XP stake to be non-strategic, having already made disposals through block trades</li>
<li>We remain cautious on XP shares based on the disposal overhang and competitive pressures in Brazilian wealth management undermining XP’s fundamentals; near term, Itausa warrants monitoring on its NAV discount</li>
</ul>


Itaú Unibanco’s acquisition of an 11.36% stake in XP in April is no strategic move; it is a contractual obligation that remained, after the regulator blocked Itaú’s acquisition plans
This adds to the existing overhang in XP shares, given that fellow XP shareholder Itausa deems its 11.5% XP stake to be non-strategic, having already made disposals through block trades
We remain cautious on XP shares based on the disposal overhang and competitive pressures in Brazilian wealth management undermining XP’s fundamentals; near term, Itausa warrants monitoring on its NAV discount


XP (XP US) – Less Demanding Valuations, but the Overhang Still Weighs

<ul>
<li>Itausa is trading at an 19.6% discount to the HoldCo’s NAV, with the discount narrowing sharply over the last two months</li>
<li>In addition, after a big increase in the dividend per share announced due to 2021 results, we believe that it is unlikely to see another big increase going forward</li>
<li>Banco Itaú Unibanco, Itausa’s largest investment, is positively geared to the hiking interest rate cycle by the Brazil central bank; we prefer direct exposure to the bank versus the holdco</li>
</ul>


Itausa is trading at an 19.6% discount to the HoldCo’s NAV, with the discount narrowing sharply over the last two months
In addition, after a big increase in the dividend per share announced due to 2021 results, we believe that it is unlikely to see another big increase going forward
Banco Itaú Unibanco, Itausa’s largest investment, is positively geared to the hiking interest rate cycle by the Brazil central bank; we prefer direct exposure to the bank versus the holdco


Itausa (ITSA4 BZ) – Too Narrow a NAV Discount, and the Dividend Yield Is No Longer Compelling

<ul>
<li>
<a href="https://www.smartkarma.com/entities/xp-inc" target="_blank" data-smartkarma-citation="entities:28619:1" rel="noopener">XP</a>’s offer for the smaller Modal values it at 10% of assets under custody (AuC) which is just a slight discount to XP’s market value of 11% of AuC</li>
<li>The acquisition should add 15% to XP’s active client base, yet it should add a mere 4% to AuC; relative to XP, Modal has 25% of average assets per client</li>
<li>We believe that the impact of this bolt-on M&amp;A is marginal at best, given the intense competition from larger wealth managers, such as the wealth arm of BTG Pactual</li>
</ul>



XP’s offer for the smaller Modal values it at 10% of assets under custody (AuC) which is just a slight discount to XP’s market value of 11% of AuC
The acquisition should add 15% to XP’s active client base, yet it should add a mere 4% to AuC; relative to XP, Modal has 25% of average assets per client
We believe that the impact of this bolt-on M&amp;A is marginal at best, given the intense competition from larger wealth managers, such as the wealth arm of BTG Pactual


XP (XP US) – Modal Acquisition Edges the Needle Higher on AuC, but It Is No Bargain

Brazil

XP Inc operates as an investment management company. The Company offers fixed income, equities, investment funds, and private pension products, as well as offers wealth management and other financial services. XP serves customers in Brazil.

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XP (XP US)

Softbank (9984 JP) – EToro’s Funding “Down Round”

Softbank fintech holding eToro had its IPO plans de-railed and now its latest funding efforts point to a "down round"; even at its lower valuation...

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

XP (XP US) – Less Demanding Valuations, but the Overhang Still Weighs

XP's less demanding valuation is not enough, in our view, to offset the big share overhang, and competition in Brazil wealth management is...

Victor Galliano

Itausa (ITSA4 BZ) – Too Narrow a NAV Discount, and the Dividend Yield Is No Longer Compelling

Itausa's NAV discount has narrowed sharply, it has little scope of dividend growth, and is selling down its XP stake at a tricky moment; we prefer...

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Softbank (9984 JP) – EToro’s Funding “Down Round”

Softbank fintech holding eToro had its IPO plans de-railed and now its latest funding efforts point to a "down round"; even at its lower valuation...

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

XP (XP US) – Less Demanding Valuations, but the Overhang Still Weighs

XP's less demanding valuation is not enough, in our view, to offset the big share overhang, and competition in Brazil wealth management is...

Victor Galliano

Itausa (ITSA4 BZ) – Too Narrow a NAV Discount, and the Dividend Yield Is No Longer Compelling

Itausa's NAV discount has narrowed sharply, it has little scope of dividend growth, and is selling down its XP stake at a tricky moment; we prefer...

Victor Galliano

XP (XP US) – Modal Acquisition Edges the Needle Higher on AuC, but It Is No Bargain

XP's acquisition of Modal means it adds marginally to AuC, for a similar valuation to XP whilst Modal has a far lower average balance per client....

Victor Galliano