On the one hand, stronger performance of the insurance segment, with profit exceeding forecasts. On the other hand, delinquency growth, with strong growth in the loan portfolio, although the numbers do not worry market analysts so much.
Bradesco’s (BBDC4) result, released last Thursday night (4), was considered solid, but many analysts did not see it as a possible catalyst for the action. For Morgan Stanley, the reaction would be positive to the balance sheet, while Itaú BBA saw the numbers as neutral, not being a big “trigger” for the assets.
The shares started this Friday’s session with volatility, reaching a drop of almost 2% at the low of the day. It is worth noting that the BBDC4 asset had three consecutive highs, with an accumulated advance of 5.24% in the period. However, and also with the general improvement in the market, assets lost zero, with a drop of 0.16%, to R$ 18.25, at 11:05 am (Brasília time).
The second largest private bank in the country had recurring profit of R$7.04 billion, up 11.4% over a year earlier and above the forecast of analysts consulted by Refinitiv, of R$6.783 billion. In net terms, the profit of R$ 7.075 billion was 18.4% higher.
“We see Bradesco’s 2Q22 result as marginally positive, benefiting mainly from a stronger performance in the insurance segment, which offset the weaker-than-expected NII (financial margin) and led to a net profit above our estimate of R $6 billion”, point out Renan Manda and Matheus Guimarães, analysts at XP.
In addition, they point out, the bank continues to show robust growth in its loan portfolio. For them, default is under control (albeit with a marginal increase, converging to pre-pandemic levels).
At the end of June, the bank’s expanded credit portfolio totaled R$ 855.4 billion, with an increase of 17.7% in 12 months, driven mainly by the expansion of lines such as credit cards and personal, which are more profitable.
Bradesco recorded a deterioration in the quality of its loan portfolio, with the delinquency ratio above 90 days increasing 0.3 percentage point on a quarter-on-quarter basis and 1 point year-on-year, to 3.5%. The leading indicators of defaults – arrears of more than 60 days and NPL – worsened and the coverage ratio, which represents the proportion that the provision for credit risk is able to cover non-performing loans, dropped to 218% (low of 17, 3 percentage points on a quarterly basis and 106.6 percentage points on an annual basis), a level that XP analysts consider still healthy.
This led Bradesco to increase the volume of provisions for expected default losses by 52.5%, also year on year, to R$5.31 billion. In the quarterly comparison, the increase was 9.9%.
The stronger performance in customer financial margin of BRL 16.9 billion (up 25.8% year-on-year, 3% above XP’s estimate) was offset by a weaker-than-expected market margin, losses of BRL 587 million (versus BRL 2.3 billion in 2Q21), which led to a total NII of BRL 16.4 billion (up 4.0% year-on-year and 6% lower than expected by house analysts). That said, the stronger insurance result of BRL 3.7 billion (up 135% year-on-year and 12.8% quarterly) offset the weaker NII in the period and benefited its results, XP points out.
For Morgan Stanley, this was another solid quarter for Bradesco, showing good earnings growth and exceeding market expectations, despite trading losses. Adjusting for these numbers, the operating results would have been even stronger, according to analysts, with an operating profit before trading of R$ 10.937 billion, up 20% on a quarterly basis and 51% on an annual basis.
“We see more positives than negatives this quarter. Bradesco continues to benefit from the scenario of high interest rates and solid credit growth amid a reasonable macro and employment environment. Thus, credit growth and the NII performed well,” says Morgan.
For the bank’s analysts, the market is too focused and too concerned with default – a view that analysts do not share, emphasizing that the numbers presented corroborate their positive view.
Goldman Sachs highlighted healthy but in-line revenues supported by client NII (better volumes, mix and spreads), fees and insurance. Provisions were also in line with what Goldman expected, on a combination of rising bad debts (up 30 basis points on a quarterly basis to 3.5%, partially due to credit assignments), lower coverage (from 235% to 218%) and positive impairments of R$1.8 billion.
Meanwhile, “other” operating expenses and the effective tax rate were lower than expected by Goldman Sachs, boosting most of the profit.
For Itaú BBA, the results were neutral and support a constructive vision for the medium term, but they are not enough to boost actions after the recent rally.
Analysts also point out that customer NII recovered well, up 7% with more retail in the mix and portfolio re-pricing. Insurance results recovered faster than projected, up 13% in the quarter. Services grew 4% in the quarter, driven by cards. The quality and cost of credit in the retail and small and medium-sized companies segments deteriorated as expected, but they also had a strategy of portfolio assignment and impairment reversal of R$1.8 billion.
Opex was slightly higher when excluding non-operating income from insurance and legal claims. “It would be a mistake to exclude these items, but there is no reason to change the guidance for the year or our estimates. Pressure on credit quality and market NII will likely gradually ease in the second half of 2022 and into 2023,” he says.
As for Credit Suisse, the numbers were seen as positive for the paper considering the quality of results above expectations, with strong revenue performance on almost all fronts, which more than offset the negative impact of lower results. “The quality of assets was in line with our vision of controlled delinquency”, he points out.
Analysts point out that it is likely that the bank will be able to exceed the guidance for margins from clients and insurance and remain comfortable with the R$21 billion risk cost assumption for 2022.
“We believe that Bradesco’s results give a positive reading to Itaú’s results (ITUB4), which should probably increase confidence in the strong NII and asset quality”, points out Credit.
The Swiss bank reiterates its outperform recommendation (above-average performance) for the asset BBDC4, with a target price of BRL 22 (or a 20% upside potential compared to the day before closing), highlighting the attractive valuation and good earnings momentum for the second half of the year. Itaú BBA, despite seeing the results as neutral, has the same recommendation with a target price of R$28.34, or an upside of 25.8%. Goldman also recommends buying, with a target price of BRL 21 (15% upside).
Morgan has an equivalent recommendation, overweight (exposure above the market average), with a target price of US$ 5.50 for the ADR (in practice, the company’s share traded on the American Stock Exchange), configuring an appreciation potential of 61% compared to the last closing. XP has a neutral recommendation, with a target price of BRL 22.