The actions of Bradesco (BBDC4) were high among banks in the last month. In May, the second largest Bank Brazil’s private sector showed a recovery of 12% on the Stock Exchange, followed by Santander Brazil (SANB11), Bank of Brazil (BBAS3) It is Itau (ITUB4).
With the positive balance of May, Bradesco’s shares started to trade above 1 time P/PV (price over book value and with premium P/E (price over earnings for the main pairs, highlights the Itaú BBAin an estimate update report for the company.
Analysts Pedro Leduc, Mateus Raffaelli and William Barranjard understand the reasons behind the stock recovery, but they don’t think that investors should continue with the movement, supported by the prospect of a slow recovery in results and structural challenges ahead.
In the assessment of the analysis team, the pace of recovery of Bradesco’s business should lose to peers in 2023-24.
“The bank will likely have to navigate its bad credit periods longer than its competitors, who are already more advanced in taming the bad credits. NPLs (non-performing loans)”, says the BBA.
The institution also sees Bradesco with less space in terms of provisions and capital to risk a very early acceleration.
“A lower Selic rate can help your NII (financial margin) of the market, but not to the extent it used to help”, say analysts.
Short term pressure…
BBA assumes that Bradesco will see better customer service quality metrics credit, then you will only be able to accelerate origination in the last quarter of this year. The portfolio should grow 5% in 2023 and 8% in 2024, while the benefits for NII will only come in the second half of 2024, given the portfolio’s duration of around 18 months, he assesses.
BBA believes that the NII should expand only 5% in 2023, to accelerate to 10% in 2024. provisions should remain high throughout 2023 and not drop too much next year.
“It is unlikely that the market NII returns to the historical level of R$ 8-10 billion/year, given the new risk management policy introduced”, add Leduc, Raffaelli and Barranjard.
and medium term equally challenging
The medium-term recovery also has its challenges. Analysts say it must be very difficult to recover ROE (return on equity) to pre-pandemic levels (18-20%) while credit spreads are being squeezed by the industry, which is moving towards a “per customer” approach to profit, not more”. per product”. As a result, banks are accepting lower yields on each of the products.
BBA expects to see a year-on-year drop of 10% in Bradesco’s results this year, to BRL 18.6 billion, recovering to BRL 23.4 billion in 2024 (12% below consensus).
The recommendation for the name is “underperform” (expected performance below the market average, equivalent to “sale”), with a target price at the end of 2023 of BRL 15.
Source: Moneytimes
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