In this briefing:
- Santander Parent for SanMex Offer Update; Wooing the Minorities?
- Itaú Corpbanca – Stuck in the Middle
- RHB Bank Placement: Last Deal Did Well Despite Size but Discount Is Tight
- SPX Fade from Macro Pivot Highs
- Banco Santander Sa (SAN SM) shares have underpeformed Banco Santander Mexico-B (BSMXB MM) since the offer announcement in April, making the offer less appealing to SanMex minorities
- In addition, SanMex delivered good results in 1Q19, and there is still some potential for results to improve at the margin
- Santander parent management argues that SanMex minorities can benefit from risk diversification, especially in the current volatile political climate in Mexico and the uncertain outlook in the Mexico-US trade wars
- Yet SAN’s poor share performance reflects the challenges that its core European operations face, and the soft share price may require SAN management to sweeten its all-share offer; the offer is expected to be launched in September or October 2019
- Itau CorpBanca (ITAUCORP CI) is starting to deliver on its turnaround
- The challenge, in both Chile and Colombia, is that Itaú Corpbanca is in the tricky middle
- It is neither one of the big banks, nor a specialist lender, so it needs first class execution to deliver improved returns
- Core capital is tight, especially once Colombian bank minorities are bought out, which also limits the dividend outlook
- Capital IQ’s consensus ROE forecasts for 2020 point to 10% plus; our more conservative estimates indicate a 2020 ROE of c8%
- On a PBV ratio of under 1x, Itaú Corpbanca screens as good value but needs to produce much improved returns to avoid falling into the value trap
Aabar Investments plans to sell US$204m worth of its RHB Bank Bhd (RHBBANK MK) or about 3.9% of the company to reduce its holding to 6.0%.
This is the third sell-down by Aabar in less than a year, following a selldown in August 2018 and March 2019. The previous selldown in March 2019, RHB Bank Placement – A Little Less Surprising but Little Bit Bigger Deal, was priced at the low-end and did well in the first week.
Guided price range is similar to its last sell down. The deal scores in the borderline for participation on our framework with a tight discount. The overhang risk remains from the 6.0% stake held by Aabar post deal.
SPX is pressing into the dual top zone at 2,950 and a make or break point for the global cycle. After the break above 2,800 we view this as another important juncture for the US cycle.
RSI near that 70 resistance is the ideal fade zone with MACD resistance noted above with the trendline marking an key inflection point given we have yet to fully unwind bear divergence.
Core sectors are still underperforming as long as we stay below 2,950.
US 5 year yield is resting in key pivot support at 1.80% and will act as a bounce/break signals for the 10yr in a lead manner. We outline clear medium term resistance and support points on a pivotal yield turn.