O Bank of Brazil 🇧🇷BBSA3) should have a dividend yield of 12% next year – below the Selic -, but the stock has an “extremely attractive” valuation, said the BTG Pactualjustifying the reiterated buy recommendation.
The share could rise by around 57%, to R$56, according to Eduardo Rosman and his team, in a report this Wednesday (7), released after a meeting between analysts and the IR team at Banco do Brasil. “They see no reason why profits cannot continue to grow in 2023,” BTG highlighted.
The bank’s guidance for this year points to quarterly net profit growth in the fourth quarter, after a record net profit of R$8.4 billion in the third quarter. Banco do Brasil does not yet have a projection for the performance of 2023.
“BB has improved profitability (ROE/ROA)”, said BTG, which highlighted that the bank’s share is traded at a P/E multiple of 3.3x – a level defined by analysts as “very cheap”.
“In fact, as a state-owned bank, BB is highly exposed to political sentiment, and each investor evaluates this in a different way”, he pondered. However, BTG said, Banco do Brasil is much more robust than it used to be.
“The bank has improved its corporate governance recently, with mechanisms similar to a corporationmitigating the risk of government interference”.
credit portfolio
Despite the expectation of a slowdown in GDP next year, Banco do Brasil executives expect the institution’s credit portfolio to grow in the single digits, according to BTG.
The agro portfolio is expected to continue showing high growth next year (albeit lower than in 2022), analysts said, as demand was driven by high prices for agricultural commodities and inputs.
Corporate loans, according to BTG, are expected to face tougher offsets due to Pronampe program credit incentives.
In the individual portfolio, Banco do Brasil should continue with the strategy of redirecting the mix to non-payroll loans – payroll loans represent around 40% of the portfolio -, according to analysts.
Banco do Brasil made necessary adjustments to its origination policies “due to the more challenging credit cycle”. “The bank reduced its credit card approval rate from around 30% to less than 10% for non-account holders, and cut its credit limits.”
Bank of Brazil Revenues
In general, Banco do Brasil’s management expects revenues to continue growing slightly above inflation next year, sustained by the good performance in several lines, such as credit operations, resource management, insurance and even current account, said BTG.
“BB has made great efforts to better understand the profile of its customers through data and analysis”, he pointed out. “The team also reinforced the positive perspectives for the subsidiaries Cielo and BB Seguridade”.
On the other hand, analysts said, expenses are expected to grow above inflation for the first time in about six years, driven mainly by personnel expenses (which currently represent 60% of total operating expenses).
“In addition, IT investments to continue driving digital transformation are expected to be stronger in the coming year,” said BTG.
Source: Moneytimes
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