THE Bank of Brazil (BAAS3) proved, once again, why it is the favorite of many analysts. The company managed to overcome political distrust and delivered eye-popping results.
Despite the strong numbers, the stock did not soar, rising 1.72% around 2:49 pm.
In the period, the Bank of Brazil saw its profit rise 34.6% and totaled R$ 6.6 billionabove the R$ 5.3 billion expected from the Bloomberg.
The number was pulled mainly by the following factors:
- strong reduction in allowance for loan losses (Provision for Doubtful Accounts) expenses, increased by 27.2% in the quarter;
- increase in net interest income of 3.6% t/t, which suffered from pressure on the margin with clients, but was offset by the treasury with the two lines basically being influenced by the higher Selic rate;
- seasonal reduction in administrative expenses of 3.7% q/q;
- sharp drop in expenses in the other components of the result;
THE Inter Research recalls that credit quality deteriorated slightly, but less than other banks, maintaining BB’s defensive characteristic.
This is just the beginning
THE Great Investments argues that good trends led BB to deliver a ROE of 17.8%, a level comparable to private banks.
“If BB manages to replicate the same performance as this in the next 3 quarters (which is quite feasible) the bank’s profit would be above the upper range of the guidance of 2022 of BRL 26b. We believe that analysts should revise upward their projections around 10% closer to the upper range of the guidance”, he states.
According to XP Investimentosthe result of Bank of Brazil was positive, with profit exceeding estimates, even with the financial margin pressured by the increase in funding costs associated with the tightening of the monetary cycle.
“If we conduct an exercise annualizing the numbers for the quarter, it is possible to see that the numbers are running above the guidance and we see a chance of an upward revision in the expectations contained in the market consensus”, he states.
THE Santander also believes that if this performance continues throughout 2022, the bank will be able to achieve results closer to the upper limit of its guidance.
already the bank of america believes that provision charges will increase over the coming quarters and the NII (default rate) will accelerate, aided by better spreads, converging net income to guidance.
Banco do Brasil did its homework
THE Itaú BBA highlights that administrative expenses fell 4% in the quarter, to R$ 8.2 billion, practically in line with estimates.
The highlight was other administrative expenses, which shrank 8% in the quarter, mainly due to the seasonal decline in marketing and security and transportation services.
Personnel expenses also decreased (1% compared to the fourth quarter) due to seasonality due to higher expenses at the end of the year.
“More importantly, on an annual basis, total administrative expenses grew by only 6%, despite strong inflationary pressures in the period. Efficiency improved to 34.7% from 35.6% in the fourth quarter.”
Default rate within the control
To Interthe drop in provisions, which shrank 27.2% in the quarter, in opposition to other banks, makes sense.
“At this point, we understand it as a slightly riskier move, but the Bank of Brazil can do it”.
Analysts cite two reasons to support this claim:
- 90-day delinquency coverage remains high at 297%, above the historical average;
- even if it continued at the current pace of provisioning 75.3% of the NPL Formation, consuming its reserves, even so, according to expectations, the bank would end the year with coverage above 200%;
“To be a riskier move, the bank’s default should rise to more than 3% in the coming quarters, which we do not expect given the current credit quality of BB, even considering deterioration ahead”, he says.
In the evaluation of activethe bank continues to report healthy indicators, giving confidence for the continuity of robust results in the coming quarters.
THE great remember that the stock is cheap, trading at a “mere” valuation of 0.61x P/VP 22 and 3.97 times price on earnings (P/E) for 22.
But, according to the broker, this multiple can be even lower. “If we use earnings at the top of the guidance range of BRL 26 billion (where the consensus should migrate), the valuation would drop to the trifle of 3.68x P/E 22”, he says.
THE Safra Bank points out that the stock is trading at an attractive level at 4.1x P/E 22e (44% off the average of the largest private banks and 37% below the historical 5-year average), offering a good entry point .
Already BTGwho classified the stock as a value trap, now says that the bank’s balance sheet appears to be much better.
“It has grown much less than its peers for many years, its capital ratio (principal) is now at the same level or better than its peers and it has a more defensive portfolio (less oriented, with more agro) than others incumbent banks, along with large loan loss reserves,” he argues.
Furthermore, says the BTGalthough it can be argued that the “quality of earnings” may not be the best, in the case of the BBwhich trades at very cheap prices, if profits come and hence dividends are paid, your carry becomes very powerful.
“There are always risks in making recommendations, but for us the actions of the Bank of Brazil have a very asymmetrical and upward sloping valuation. We expect stocks to continue to outperform and flag BB as our Top Pick for 2022″, he says.
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