Mexican Banks: Selective value in smaller caps
Financials
Galliano's Financials Research
Aside from Trump’s tariff policies, Mexican banks are under pressure from the government to deliver on more competitive lending rates, with fintech challengers Nubank and MercadoLibre’s MercadoPago gaining traction. Despite these challenges, 1Q25 results were sound and the bank sector participated in the somewhat surprising Mexican bolsa rally in April. In this report, Victor Galliano applies his proprietary scorecard - which assesses valuations, balance sheet strength, returns and credit quality - that is then weighted across ten criteria to arrive at his investment picks; BanBajio, followed by BanRegio, rank as the top two. Inbursa is bottom ranked.
Edition: 211
- 16 May, 2025
High conviction financials for 2025
Financials
Galliano's Financials Research
Bradesco, Hana Financial and Bank of Baroda are Victor Galliano’s top picks amongst the GEM banks due to deep value with positive returns catalysts, while his sell on premium-valued Nubank is due to fundamental return headwinds emerging. In the Japanese banks, Victor identifies Mizuho and Resona as key beneficiaries of higher benchmark rates going forward, alongside very attractive valuations and supported by strategic share portfolios. CME Group is his 2025 pick in global exchanges, as a "flow monster" with a very strong competitive position. PagSeguro is his deep value, contrarian pick in payments.
Edition: 201
- 13 December, 2024
Financials
Galliano's Financials Research
Bradesco is Victor Galliano’s key pick in big-cap Brazilian / LatAm banks - he believes that post-provision earnings will recover in 2H24, which should drive a meaningful lift in group ROE. It is also looking to squeeze opex, and given its underwhelming efficiency ratio, there is potential to find savings. Bradesco has an attractive earnings yield for lesser political risk than Banco do Brasil, but it is also attractive on its (recovery) growth potential as reflected in the PEG ratio and it has undemanding PE multiples and PBV ratios. NuBank is a digital bank success story, but one that Victor considers has challenges in terms of credit quality and it has potential capital constraints given its fast loan growth.
Edition: 194
- 06 September, 2024
EM Digital Banks
Financials
Galliano's Financials Research
Victor Galliano turns bullish on KakaoBank, for its increasingly secure competitive positioning in Korea, its attractive digital efficiency ratio, its low customer acquisition cost and for its high activity rate. He switches his Buy rating from Banco Pan to Inter as the latter has improved operationally, it is sound on capital and attractive on valuations. While Nubank is executing well, Victor remains cautious on the stock as he continues to see potential capital constraints as a key risk, along with its stretched valuations.
Edition: 187
- 31 May, 2024
Financials
Galliano's Financials Research
Victor Galliano thinks it is time to take profits (having upgraded the stock to Buy in Jan 23) given NU’s limited potential for positive surprises and its stretched valuation - the bank faces several challenges including 1) The NPL ratio is set to increase further, given NU’s heavy exposure to credit cards and unsecured lending. 2) The high rates of asset growth have eroded its capital adequacy ratio, from a CET1 ratio of 21.8% in 2021 to 13.7% at the end of Mar 23. 3) The expansion in Mexico and Colombia, where NU is not the dominant neobank, could result in an acceleration of opex, resulting in a reversal of the very impressive efficiency ratio going forward.
Edition: 164
- 07 July, 2023
Financials
Galliano's Financials Research
4Q22 results confirm that NU is the benchmark among EM neobanks in terms of activity rates, as well as trends in revenues and costs per client and digital efficiencies. Victor Galliano sees further potential for broadening and deepening the product offer to customers, at little incremental cost especially in Brazil, to drive cost effective revenue growth. Victor’s proprietary NU model forecasts are broadly in sync with positive consensus estimates; he forecasts group ROE of close to 30% in FY25, despite high cost of credit assumptions.
Edition: 155
- 03 March, 2023
FinTech & Financials: 2022 investment themes
Financials
Galliano's Financials Research
1. A shift into value in EM banks; cautious on digital banks - top picks are Sberbank, Banco do Brasil and HDFC Bank. Nubank likely to be one of the EM FinTech big negative surprises of 2022.
2. Southern Europe banks, position for the prospect of higher interest rates - highlights BBVA and Banco BPM.
3. Exchanges, competitive pressures are real, but are they priced in - B3 and Singapore Exchange standout.
4. Growth and value in digital payments - highlights Mastercard and, for its deep value, PagSeguro.
5. Digital wealth managers, picking a potential winner - BTG Pactual.
Edition: 126
- 07 January, 2022
Banco Inter (BIDI11 BZ)
Financials
Galliano's Financials Research
StoneCo to invest up to BRL2.5bn in Banco Inter - while the deal has initially been well received by the market, it does not change Victor Galliano’s view that both Banco Inter and StoneCo face major challenges in justifying their premium valuations (Banco Inter trades at a 45% premium to its core competitor Nubank) especially at a time when competition across the board in digital financial services in Brazil is only intensifying.
Edition: 111
- 28 May, 2021