Credicorp Leading The Recovery With Strong Growth And Credit

Peru’s Credicorp (BAP) has been something of a middling performer since my last update. The shares are up about 10% since early September (excluding dividends), but then the S&P 500 is up a little more than that and you could have earned similar returns from other Andean banks like Banco de Chile (BCH) and Banco Santander-Chile (BSAC), so I don’t feel like Credicorp has really lived up to what I’d have hoped. Then again, given the weakness in the Peruvian banking sector in the second half of 2017, it’s not a terrible result either.

As things stand today, Credicorp is in that gray area of “like the company, kinda uncertain on the stock.” I think a low double-digit total return is possible from here, and I do expect double-digit long-term earnings growth, but the P/TBV is right about where I think it should be and there’s still some work for management to do building up its retail lending business and making its dividend/capital return policy more transparent.

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Credicorp Leading The Recovery With Strong Growth And Credit

BBVA Posting Better Results And Making Better Decisions

Spanish banks have done alright over the past year, with BBVA (BBVA), Santander (SAN), and Caixa (OTCPK:CAIXY) all up between 20% and 30%, in line with other well-liked European banks like ING (ING), and well ahead of some of their other large European peers. Even with the turbulence in Catalonia, economic conditions have been improving in Spain, and with that so has credit quality. What’s more, both BBVA and Santander have gotten a little more proactive about selling underperforming assets.

While BBVA has done fine over the past year, there could still be a little upside left in the shares. Even though I don’t think BBVA will get to the psychologically important 10% ROE level for a few years, I do expect double-digit earnings growth over the next five years and high single-digit growth over the long term, supporting a fair value around $9/ADR.

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BBVA Posting Better Results And Making Better Decisions

Recovering Loan Growth And Long-Term Prospects Argue For Credicorp

Even though lending growth in Peru has slowed dramatically in the past year, as has GDP growth, I can't really complain about the performance at the country's largest bank, Credicorp (NYSE:BAP). The shares are up more than a third since my last update on the company, which most of that move occurring in the last four months as the economic and political situations in Peru seem to be improving. 

I still believe that high-teens long-term ROE can support double-digit earnings growth at Credicorp, but I've become incrementally more bullish on Credicorp's ability to hold on to its strong ROEs as the Peruvian market matures. Credicorp remains a strong player across the board, and management seems committed to sustainable growth and good capital management. Although the shares only seem to be slightly undervalued today, I still believe that they can generate double-digit returns from here with an increasing dividend payout.

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Recovering Loan Growth And Long-Term Prospects Argue For Credicorp

Weakness In Spain And The U.S. Continues To Weigh On BBVA

While Spain's BBVA (NYSE:BBVA) has looked undervalued for a while on the basis of what the company could earn in a long-term recovery scenario, it has been a value trap for a while as weakness in its Spanish and American businesses sap the momentum. The shares are down slightly from when I last wrote on them, slightly underperforming Santander (NYSE:SAN) and underperforming Canada's Bank of Nova Scotia (NYSE:BNS), which also has a large Latin American business, by a more significant amount.

Spain's real estate market seems to be improving and BBVA's Latin American markets should see growth improve in 2017, but the prospects for better rates, spreads and loan demand in Spain and the U.S. aren't great, and the bank's growth is likely to continue to depend heavily on Mexico. I've trimmed back my long-term assumptions again, reducing my long-term earnings growth target to 7-8%. With that, the fair value declines to around $7.25 and BBVA looks more like an "okay" prospect than a compelling pick.

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Weakness In Spain And The U.S. Continues To Weigh On BBVA

Credicorp Still A Leader In A Growing, Under-Served Market

Peru isn't on the radar of many investors, perhaps in part because it is still a smaller, mining-dominated economy and also because there aren't many liquid ADRs to follow. Whatever the case, Credicorp (NYSE:BAP) continues to look like a rare asset - a responsible, well-run Peruvian bank with good market share and yet still good growth potential given the size of the under-served Peruvian market.

These shares have done alright since my last favorable write-up, climbing almost 20% as the company has continued to do a solid job growing its business. Although I do believe Credicorp's ROE is likely to shrink in the future as the Peruvian economy matures and rivals like the Peruvian operations of BBVA (NYSE:BBVA) and Bank of Nova Scotia (NYSE:BNS) compete harder for business, I'm still looking for long-term earnings growth of over 10% on an annualized basis, supporting a fair value of over $160/share today.

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Credicorp Still A Leader In A Growing, Under-Served Market

Seeking Alpha: Weak Energy Weighing Heavily On Canadian Western Bank

Back in my analyst days, I had a Garfield cartoon pinned to a wall that said "Every time I think I've hit rock bottom, somebody throws me a shovel". It's a good reminder that however bad things look, there's usually some way they can get worse, and that has proved to be the case for Canadian Western Bank's (OTCPK:CBWBF) (CWB.TO) which shares have weakened further from my last update, as energy prices have eroded further and have started to hit Alberta's economy harder.

With that "it can always get worse" mometo mori in mind, it's difficult to hold, or advise holding, a company that is still going through a cyclical decline. Canadian Western is likely to see more pressure on loan growth and credit from here, and I don't think anybody really knows what will happen to Alberta's economy if oil prices stay sub-$40 for an extended period of time other than that it will be bad.

I think there's value here, but it's absolutely true that there is above-average risk. I'm expecting the next five years to see an average ROE at CWB below 10%, with a scant 1% annualized cash earnings growth rate. Over time, though, I think ROE will recover into the low-double digits and earnings will grow at an annualized rate of more than 6%. That suggests that a fair value in the high $20s is still appropriate, but the market is clearly down on this name and the high correlation to oil prices will likely continue to dominate near-term trading.

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Weak Energy Weighing Heavily On Canadian Western Bank

Seeking Alpha: Credicorp Generating Good Results In An Underserved Market

I was pretty down on Credicorp (NYSE:BAP) shares back in May of 2015, as I didn't think the shares offered enough upside to offset the risk. While the company has done pretty well on an operating basis since then, the shares are down about 10% since that last article and have more or less tracked the movement of the Peruvian nuevo sol versus the dollar.

I continue to have mixed feelings about Credicorp. I think this is a pretty well-run emerging market bank, and I like the company's leadership in a growing under-banked market. I don't like the company's heavy reliance on the Peruvian central bank to subsidize the de-dollarization process (moving from dollar-denominated loans and deposits to PEN-denominated), and I have some modest concerns about the level of reserves. I think the shares are about 10% to 15% undervalued even after incorporating a higher cost of capital, so it's not a clear-cut buy to me right now.

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Credicorp Generating Good Results In An Underserved Market

Seeking Alpha: Strong Operations In Mexico Buying Time For BBVA In Spain

Diversification has paid off for BBVA (BBVA). While Spain's economy continues to struggle, operations in Mexico, the U.S., and South American countries like Chile, Peru, and Colombia have continued to generate much-needed profits from their capital base. Although there may be too much optimism about a pronounced near-term turnaround in Spain, BBVA is nevertheless positioned to benefit from consolidation, better consumer conditions, and long-term credit repair.

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Strong Operations In Mexico Buying Time For BBVA In Spain

Seeking Alpha: Even After A Little Rally, Credicorp Could Have More Headroom

Shares of Peru's largest bank, Credicorp (BAP) have spent the last six months basically just hanging around, with the shares wobbling between $125 and $140. Investors have been mulling over changes in Peru's economy, the de-dollarization of the banking sector, loan growth and default trends, as well as company-specific issues like recent disappointments in earnings and the promising acquisition of Mibanco.

I hope it goes almost without saying that investing in a Peruvian bank carries certain risks above and beyond your typical investment, though clearly investing in banks like Citigroup (C) and so on is hardly risk-free. This looks like a well-run bank, though, and a company that is structured to benefit from both the growth of the Peruvian economy and the maturation of the Peruvian financial sector. Shares appear undervalued on both an ROE and book value basis, with upside to $160 on relatively conservative assumptions.

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Even After A Little Rally, Credicorp Could Have More Headroom

Seeking Alpha: For One Of The Best Banks, Go North

It does interest me how sell-side analysts and investors will often overestimate the improvements to be had from inferior banks and simultaneously underrate the ability of banks who've established their excellence to keep the good numbers rolling. Such as that may be, it can work to investors' interests when it comes to Canada's 7th-largest bank, Canadian Western (OTCPK:CBWBF) (CWB.TO).

I'm certainly not going to argue that Canadian Western is obviously cheap - the stock trades at over 2x book value and about 30% above its traditional forward P/E. That said, those ratios don't always incorporate the superior record of profitability and returns at CWB, and I believe the shares are as of yet still somewhat undervalued. What's more, CWB is a good play both on the ongoing development of energy resources in Western Canada and a higher rate environment. I'd be tempted to wait in the hope of a pullback, but I've gone down that road before to my own detriment.

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For One Of The Best Banks, Go North

Investopedia: Scotiabank's Balanced Model Continues To Deliver

Each of the Canadian Big Five banks has its own strategy to diversify its growth outside of the Canadian banking market. In the case of Bank Of Nova Scotia (“Scotiabank”) (NYSE:BNS), that strategy revolves around building its high-growth Latin American banking business and it's less appreciated (but still lucrative) wealth management operations. Although investors should not underestimate the risk of a banking slowdown in Canada nor the inherent risks of emerging market banking, Scotiabank looks as though it may be a relative bargain in the banking sector.

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Seeking Alpha: High Expectations And Uncertain Strategy Could Challenge First Cash Financial

While I'm a happy long-term shareholder of First Cash Financial (FCFS), it is well worth asking what the next year may hold for this generally under-followed and under-known financial services company. Same-store growth has stalled a bit, gold prices are uncertain, and investors continue to look for more definitive guidance about the company's future growth plans. Couple that with a relatively fair valuation, and these shares could appear to some to be liable for some sluggish performance.

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High Expectations And Uncertain Strategy Could Challenge First Cash Financial

Investopedia: Is Shinhan A Good Option For Investors Looking For Banking Performance?

Investors who want to put new money to work in the banking sector are finding a shrinking pool of good options out there. While there are a few banks here and there, like U.S. Bank (NYSE:USB), that still offer some solid long-term potential, most U.S. and Canadian bank stocks have caught up to their fundamental values and so many European banks are just a horror show of credit risk and low growth.

So what about emerging markets? Investors have started to worry about the growth outlook in Brazil, and the problems in Argentina have offered up a reminder that success in these markets can be fleeting. But Asia may be a different case. In particular, investors may want to consider the opportunity in Korea's leading bank Shinhan Financial Group (NYSE:SHG).

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Investopedia: Bank of Montreal Looking Stuck For Now

There are a lot of things to like about Bank of Montreal (NYSE:BMO), including its relatively solid credit quality, its strong dividend and its willingness to look outside of Canadian retail and commercial banking for future growth. What's not to like, though, is the relatively stagnant near-term performance, the weakening credit metrics and the weakening margins in both the American and Canadian operations. Although Bank of Montreal looks undervalued on the basis of its likely future returns on equity, investors considering these shares ought to appreciate the relatively bearish sentiment out there and be ready to wait to see value.

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Investopedia: Peru's Under-Banked Market is Fueling Creditcorp's Growth

With bank branches blanketing the United States, Canada and most of Western Europe, and seemingly everyone holding some sort of debt, it seems hard to imagine what an under-banked market might look like. Look no further than Peru, then, where significant economic growth and increasing penetration of retail banking services is driving a great growth story for Credicorp (NYSE:BAP).

What's Under-Banked Mean?
There's ample room to argue about what the "right" level of banking activity in a country is and the best way to measure it. For sake of simplicity, I'm going with loan-to-GDP. In developed countries, that ratio is 137%. In Chile, which in many respects is the most "European" of South American countries, the ratio is 86%, while the ratio drops to 57% in Brazil.

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Investopedia: Popular An Interesting Risk-Reward Trade

With signs of life in lending and ongoing improvements in credit, a lot of the big discounts in well-known banks have shrunk significantly. There's still a leading banking franchise that trades at a major discount - Puerto Rico's Popular (Nasdaq:BPOP). While this bank still needs to pay off its TARP funds and recent results are hardly extraordinary, the discount to value here looks large enough to be worth a longer look.

Strong at Home  
Popular has long been the largest retail bank in Puerto Rico and the credit problems of recent years have only increased that lead. Popular has as many branches open in PR as the next four competitors combined, and holds more than 40% of deposits in Puerto Rico.

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Investopedia: Peru's Big Decision

Elections matter in almost every economy, but maybe even more so in Latin America. Several once-promising growth stories have been all but erased in the wake of elections that brought in who promised equality, but delivered little more than shared misery and more corruption. Venezuela is perhaps the best recent example, though there are others. Right now, investors are fretting over what this weekend's election in Peru may hold for the country, its citizens and investors. 


More of the Same or a Turn to the Left?
The June 5 election in Peru has come down to a very close contest between Keiko Fujimori and Ollanta Humala. Ms. Fujimori's platform basically represents a "more of the same" continuation of existing policies; policies that have brought a lot of growth to Peru and considerably more economic stability.

Ollanta Humala is more of an unknown quality. A former military officer, Humala fought against Peru's Shining Path (a Maoist insurgency), but also led an unsuccessful military revolt against the government of Alberto Fujimori - Keiko's father and a former President of Peru now in jail for a host of crimes committed during his administration.


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