It’s time to give banks a second chance – Money Times

Bank of Brazil
In the period, net income exceeded Bradesco BBI’s estimates and Bloomberg’s consensus by 3% and 6%, respectively (Image: Agência Brasil)

Banks suffered a major hit in the pandemic of Covid-19. With the increase in provisions for doubtful payments, a shield to avoid defaults, the industry’s profits inevitably fell. And together with them, actions.

So far, only the Santander (SANB11) managed to recover pre-pandemic prices. Itaú (ITUB4) is 9% below and Bradesco (BBDC4) 13%. already the Bank of Brazil (BBAS3) still suffers from market skepticism due to political interventions in the company.

But if you’re a little suspicious of the sector’s potential going forward, it’s better to change your mind. THE Now Investments raised the projections for the banks after the results of the second quarter.

In the period, net income exceeded the estimates of the Bradesco BBI and Bloomberg consensus at 3% and 6%, respectively, with 3% growth in the quarter. In addition, the broker has good prospects for the coming semesters.

Ágora also raised the target price and projections for Santander, Itaú and Banrisul (BRSR6), such as profit in 2021.

See the table below:

Bankprofit (before)Profit (after)Target price (before)Target price (after)Potential
SantanderBRL 15.5 billionBRL 16.9 billionBRL 47BRL 4815%
ItaúBRL 25.9 billionBRL 26 billionBRL 38BRL 3926%
BanrisulBRL 1 billionBRL 1,084BRL 15BRL 1629%

Within this universe, Ágora’s favorites are Itaú and ABC Brazil (ABCB4), given better risk-return ratios and attractive valuations with price-to-earnings for 2022 of 8.2x (excluding XP) and 5.6x, respectively, against 9.3x for Santander, 4.3x for Banco do Brasil and 4, 4x to Banrisul.

State-owned banks or private banks?

Analysts Gustavo Schroden and Maria Clara Negrão, who signed the report, also point out that private peers posted earnings growth of 3.6% in the quarter, compared to 2.2% in the quarter for public banks, while the sector had average of 3.1%.

According to the pair, this difference is due to three factors:

  • the strong financial margin with clients, driven by a better portfolio mix;
  • higher fee income, due to higher income from card and fund administration;
  • lower provisions compared to state-owned

And what to expect from now on?

In the experts’ view, banks should continue to grow in 2021, taking advantage of an acceleration of the change in the portfolio mix for individuals and small and medium-sized companies.

“We maintain our positive vision for the second half, expecting a faster acceleration for credit to individuals and companies, which should translate into better quality of results”, they complete.

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