INFORME de Bancos argentinos de RJ
Arg. Banks: Reiterating Outperform for GGAL/BMA on Normalization, Downgrading BFR on Valuation
Recommendation:
We are reiterating our Outperform ratings on shares in GGAL and BMA, and raising our YE16E target prices to US$36/ADR and US$82/ADR, respectively. Simultaneously, we are downgrading our recommendation on BFRshares to Market Perform on relative valuation. We continue to believe banking stocks will be one of the mostconvincing earnings growth stories in Argentina based on: the low level of banking penetration in the country; theirproven track record to grow vigorously under positive economic conditions; and their robust financial and operationalpositions to face growth without making any material investments. In light of these factors, and counting onnormalization, we believe Argentine banks should be trading at a premium over Latam peers, in spite of a challenging2016 outlook. Our new TPs, which reflect an average expected return of 25% by YE16, are based on an adjustedforward earnings target multiple of 11x. Argentine banks are selling, on average, at adjusted forward earnings of 9x,
below the Latam’s average 2016 P/E of 10x, which ranges from Brazilian banks’ 7x to Mexican banks’ 13x.
Argentine Banks present the highest growth potential in the region. Our positive view on the Argentine bankingsector is supported by three main factors: 1) the Argentine banking sector is the least developed in the region, with adomestic credit-to-GDP ratio of 17%, which compares with the regional average of 46%; 2) Argentine banks haveproven they can grow vigorously if economic conditions are supportive, as was the case in the recovery process afterthe 2002 crisis and after the 2009 recession, when system credit expanded by more than 20% and 15% in real terms,respectively; 3) banks are operationally robust and financially strong enough to face growth: the system’s loans-toequityratio is 4x, while delinquency rates only reach 2%. In all, we expect credit in the Argentina to expand 15% y/y inreal terms between 2017 and 2020, surpassing the expected 5-10% y/y average real growth rate expected for the restof the countries in the region.
Valuation: An additional YE16 expected return of 25%.