Itau Unibanco Underappreciated On Its Leverage To Higher Rates And Strong Loan Demand

 

These are interesting times in the global economy, with many countries already seeing challenges to their post-pandemic recoveries even before the recent spike in oil prices. In Brazil, while sectors like construction have been fairly healthy, GDP is expected to slow from 5% growth in 2021 to 1% to 2% in 2022 and 2023, and industrial output has been shrinking for several months, with the last reading still below pre-pandemic levels.

What’s interesting for an economy is often interesting for its banks, and so too with Itau Unibanco (ITUB). Recent trends here have been quite positive, and management has not been shy about guiding for strong growth in 2022, but the market is not buying that outlook right now.

Itau has seldom been my preferred bank in Latin America, but I did like the shares back in March of last year on what I thought were underappreciated recovery prosects. The ADRs have since generated a 25%-plus return, outperforming other Brazilian banks like Banco Santander Brasil (BSBR) and Bradesco (BBD), as well as LatAm options like Banco de Chile (BCH), Bancolombia (CIB), Creditcorp (BAP). That performance does carry an asterisk, though, as the local shares haven’t been as strong, falling about 10% and lagging the BOVESPA.

At this point these shares do look undervalued, but I am concerned about the risk of revisions to management and sell-side expectations for the year. Then again, that risk is mitigated by the fact the Street really doesn’t seem to believe in those numbers now anyway.

 

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Itau Unibanco Underappreciated On Its Leverage To Higher Rates And Strong Loan Demand