The earnings season is approaching and, with that, investors are starting to set their expectations for fourth quarter results. For banks, forecasts are not so clear, with, on the one hand, a probable growth in loan portfolios and, on the other, the threat of an increase in default.
“Data from the Central Bank show credit expansion of 3% in the first two months of the fourth quarter, mainly concentrated in retail credit”, highlight analysts Thiago Batista, Olavo Arthuzo and Philip Finch, from UBS.
They also highlight the growth in loans made available to small and medium-sized companies, which now account for 44% of all credit made available to legal entities, and the increase in the number of accounts opened, which reached 788 million, up 6% on a quarterly basis. .
On the other hand, however, the bank also sees a possible growth in default and also in risk costs in the last three months of 2021.
Goldman Sachs analysts Tito Labarta, Tiago Binsfeld and Beatriz Abreu partially endorse this last argument, claiming that credit growth together with economic slowdown and accelerating inflation can hurt results (leading to an increase in provisions, for example ). Despite this, for them, most of these threats would already be priced in.
Banco do Brasil, Bradesco and Itaú are preferred
“Our preferred choices are for Banco do Brasil (BBAS3) and Bradesco (BBDC4), which are trading at a very discounted rate and should show resilient gains,” comment Labarta, Binsfeld and Abreu. Both have a buy recommendation from the American bank and target prices set at, respectively, R$46 and R$26.
Banco do Brasil, for Goldman Sachs, should see its return on average equity fall, due to higher provisions. “We expect provisions to increase 32% quarter-on-quarter as the cost of risk increases 50 basis points on a like-for-like basis to 2.7% and asset quality deteriorates slightly,” they say.
Bradesco, on the other hand, according to analysts, can bring about healthy growth in the loan portfolio (2% in the quarter and 16% in the year), leading to an expansion in interest income (5% in the quarter and 22% in the year). – which should be partially mitigated by higher provisions (15% in the quarter and 22% in the year), with the cost of risk increasing 30 basis points compared to the third quarter, to 2.6%.
Goldman Sachs projections for BB and Bradesco:
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- Banco do Brasil: Net revenue of BRL 15.8 billion and net income of BRL 3.6 billion
- Bradesco: Net revenue of R$16.4 billion and net income of R$4.8 billion
THE top pick for UBS among Brazilian banks is Itaú (ITUB4), which should bring better margins, with income from investments close to the top of what was forecast in the guidance.
Despite a likely deterioration in loan quality, this must be compensated for. The American bank expects that Itaú’s profit will grow 3% on a quarterly basis, reaching R$7 billion, and the return on average equity (ROAE) will reach 19.9%. In addition, Itaú, for UBS, brings solid organic growth to its portfolio.
Goldman Sachs, however, does not see Itaú’s revenue advancing, forecasting a 2% drop on a quarterly basis, reaching R$ 19.1 billion. The bank’s pessimism is explained by the view of greater pressure on interest profit margins, which should fall 20 basis points to 3.8%, which should minimize the 4% growth in the loan portfolio. Net income should decline 1% compared to the third quarter, to R$ 6.7 billion.
For UBS and GS, Santander Brasil should have a decline in profits
As a consensus between the two groups of analysts, is the likely fall in earnings of Santander Brasil (SANB11). UBS points out that recurring earnings are expected to decline 3.8% on a quarterly basis to R$4.1 billion, with weaker results in tradings and higher tax collection, which were “abnormally small in the third quarter”).
Goldman Sachs sees Santander’s revenue advancing 1% on a quarterly basis, to R$14.7 billion, but profit holding steady, also on account of taxes. “We expect healthy expansion of the loan portfolio (increase of 3% in the quarter and 14% in the year), while the net interest income is expected to grow below loans on a quarterly basis due to a lower interest margin”, they comment.
Despite this, the bank raised the recommendation for unit shares of Santander Brasil from sale to neutral, with a target price of R$ 34, without changes, since it assesses that the negative risks for the shares are already priced and that profitability should stay healthy.
Goldman Sachs raises Itaúsa’s buy recommendation
In its latest analysis, Goldman Sachs raised the recommendation for Itaúsa’s preferred shares (ITSA4) to buy, despite the target price having dropped 3%, to R$12 (upside 33% compared to Thursday’s closing). “We see papers as a cheap form of exposure to investments that combine growth, such as XP, and quality, such as Itaú”, they explained.
UBS still sets expectations for Nubank and Inter (BIDI11), both with a buy recommendation.
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For the former, analysts expect strong growth in the number of customers, reaching 52 million, driven by the public offering, despite seeing a net loss of R$15 million. In addition, the loan portfolio is expected to reach US$ 6 billion, growing 14% in the quarter and 81% in the year.
For Inter, analysts point out that the main operational data for the fourth quarter have already been released, with the number of customers having already surprised positively. For net income, the expectation is R$ 55 million, with the loan portfolio reaching R$ 18.3 billion, up 15.7% on a quarterly basis and 94.6% on an annual basis.
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