Credicorp Looks Undervalued, But Its Market Is Slowing

Credicorp (BAP), Peru’s largest bank in terms of both loan and deposit share, has had a pretty so-so run of late, with the shares down about 5% over the past year, roughly matching the performance of the wider Peruvian market. Although Credicorp’s operating performance has been solid, and Peru’s economy is still in generally good shape, most of the incremental developments have been negative, with a slowing economy and slowing loan demand showing up more recently.

All bets will be off if the global economy tips over into full-blown recession, but at this point it looks like Peru will see a relatively more gentle “adjustment”. The next year may not be the strongest operating set-up for Credicorp, but I do believe the company is still well-placed for above-average growth in the years to come, and I believe management has a credible plan to reach more of Peru’s underbanked citizens and reduce costs, while also carefully expanding outside Peru. I don’t believe Credicorp is dramatically undervalued relative to the above-average operating risk, but I do believe the shares are priced for a relatively attractive low double-digit annualized return.

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Credicorp Looks Undervalued, But Its Market Is Slowing