Between the pandemic and government turmoil, there's still quite a bit of upheaval in Peru, and that's seldom good for business. Nevertheless, things are slowly getting better and Credicorp's (BAP) conservative operating philosophy (including conservative economic projections and reserving decisions over a year ago) seems to be serving the bank well during this challenging period.
I can't say that the risks to Credicorp's credit quality or Peru's economy have peaked and that it will be smooth sailing from here. Frankly, given Peru's political environment today, "smooth sailing" is probably a pipe dream. Even so, I expect a strong recovery over the next couple of years, with Credicorp regaining 2019 levels of profitability in 2022 (on the earlier edge of my prior outlook) and long-term core earnings growth in the neighborhood of 7%-8%.
These shares have risen about 30% since my last update, lagging the recovery in the U.S. bank sector, but outperforming the S&P 500 and modestly outperforming the iShares MSCI Peru ETF (EPU). With low-to-mid-teens annualized total return potential and a fair value closer to $200/share, I think this is a name for investors to consider as one of the better economies in South America gets back on track.
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Amidst Ongoing Turmoil, Credicorp Still Offers Attractive Upside
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