Bradesco Still Shows Challenges, And Lags The Market, Only Fairly Valued

seekingalpha11-06

Banco Bradesco's 3Q24 results show declining market share, increasing costs, and shrinking margins. Despite this, net income recovered due to lower delinquencies.The bank's loan book grew 8% YoY, but ...

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Despite this, net income recovered due to lower delinquencies.The bank's loan book grew 8% YoY, but ...</p>\n\n<a href=\"https://seekingalpha.com/article/4733567-bradesco-still-shows-challenges-and-lags-the-market-only-fairly-valued\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Bradesco Still Shows Challenges, And Lags The Market, Only Fairly Valued</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBradesco Still Shows Challenges, And Lags The Market, Only Fairly Valued\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-06 15:57 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4733567-bradesco-still-shows-challenges-and-lags-the-market-only-fairly-valued><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Banco Bradesco's 3Q24 results show declining market share, increasing costs, and shrinking margins. Despite this, net income recovered due to lower delinquencies.The bank's loan book grew 8% YoY, but ...</p>\n\n<a href=\"https://seekingalpha.com/article/4733567-bradesco-still-shows-challenges-and-lags-the-market-only-fairly-valued\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"IE00B1B80R65.USD","symbol_name":"柏瑞拉丁美洲股票A","start_time":0,"source_url":"https://seekingalpha.com/article/4733567-bradesco-still-shows-challenges-and-lags-the-market-only-fairly-valued","article_id":"2481767756","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1214963219/image_1214963219.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2481767756","pubTimestamp":1730879871,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Banco Bradesco's 3Q24 results show declining market share, increasing costs, and shrinking margins. Despite this, net income recovered due to lower delinquencies.The bank's loan book grew 8% YoY, but ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"IE00B1B80R65.USD":"柏瑞拉丁美洲股票A","LU0788109048.HKD":"BGF LATIN AMERICAN \"A2\" (HKDHGD) ACC","LU0128526570.USD":"TEMPLETON LATIN AMERICA \"A\" ACC","LU0265266980.USD":"法巴巴西股票基金","LU0320763518.SGD":"FTIF - Templeton Latin America A Acc SGD","LU0029865408.USD":"TEMPLETON LATIN AMERICA \"A\" INC","LU0054450605.USD":"HSBC GIF GLOBAL EMERGING MARKTS EQ \"AD\" INC","LU0072463663.USD":"Blackrock Latin American A2 USD","LU0229945570.USD":"TEMPLETON BRIC \"A\" (USD) ACC","BBD":"巴西布拉德斯科银行","LU0543330566.HKD":"TEMPLETON BRIC \"A\" (HKD) ACC","BK4207":"综合性银行","LU0572108347.SGD":"Blackrock Latin American A2 SGD-H","BBDO":"布拉德斯科银行","LU0532187761.SGD":"JPMorgan Funds - Brazil Equity A (acc) SGD","LU0449515922.USD":"HSBC GIF GLOBAL EMERGING MARKETS EQUITY \"PC\" (USD)ACC"},"translate_title":"布拉德斯科仍然面临挑战，落后于市场，估值仅合理","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BBD":0.9,"BBDO":0.9},"content_text":"Banco Bradesco's 3Q24 results show declining market share, increasing costs, and shrinking margins. Despite this, net income recovered due to lower delinquencies.The bank's loan book grew 8% YoY, but it's losing share in key categories like personal loans, credit cards, and deposits.Lower net interest margins and higher operating expenses are concerning, though improved loan quality has reduced non-performing loans and allowances.Despite challenges, Bradesco's valuation is historically cheap, offering a speculative opportunity with potential for a 14% yield on a $24 billion market cap.   Leila Melhado/iStock Editorial via Getty Images  Banco Bradesco (NYSE:BBD) reported 3Q24 results with very little to like: the bank is losing share, expensive funding is growing, margins are decreasing, costs are going up despite loan book shrinking, and the company's insurance operation is losing clients. Maybe the only aspect to like is the continued recovery in income via lower delinquencies and allowances. Despite the continued challenges, the name can be considered fairly valued. The reason is that the improvement in net income coming from lower delinquencies shows a path to returning to BRL 20 billion a year in net income ($3.45 billion) or a yield of 14% on a market cap of $24 billion. I maintain a Hold on the belief that other Brazilian banks are equally cheap and better positioned (Santander (BSBR) covered for 3Q24, and Banco do Brasil (OTCPK:BDORY) covered for 2Q24). 3Q24 results Losing market share in key areas: Bradesco's 3Q24 loan book expanded 8% YoY, on a similar figure to the recently reported BSBR. However, when discriminating by categories, the bank is losing share in key categories like personal loans, credit cards, vehicles, and deposits, in many areas more than 1pp YoY. These areas are still growing, but vis a vis the Brazilian industry, Bradesco is growing less. Loss in services: The same can be said of service fees in key areas like credit cards and current accounts. Both categories are flat if the consolidation of Cielo is not included (9% otherwise). These are the most profitable service areas. Without Cielo services would have been up only 2.4% YoY (versus inflation of 4/5%). Lower margin: The company's net margin on loans is decreasing, with NII (ex-allowances) growing only 1% YoY. This led to a fall in NIM of 70bps YoY (from 9.1% to 8.4%). Search for quality: The bank justified both situations (losing share in loans and deposits and losing margin) to a search for a more balanced portfolio with lower risks. Indeed, this can be appreciated from the quality chart below, with E-H risk decreasing strongly YoY in individuals and MSMEs, and AA-C growing.   Portfolio quality by segment and quarter (Bradesco 3Q24 report) Lower NPLs and ALL: The improvement in qualities, and the normalization in the cost of debt in Brazil (vis a vis 2023), led to a decrease in credit risks costs. NPL formation and ALLs are both down more than 20% YoY for the 3Q24 and 9M24 periods. In fact, NII after ALLs was up more than 30% for these periods, fully explained by the change in ALLs. Even more, the whole improvement in net income for 3Q24 vs 3Q23 can be explained by improvement in ALLs (more on this later). Higher OpEx: Despite the bank launching a restructuring project in early 2024, the improvement in OpEx cannot be seen yet. Personnel grew 10% for the year, whereas administrative expenses were flattish. The effect of Cielo is not disclosed, so we cannot know how much that effect was. According to the call, the consolidation of Cielo was negative moderately to earnings. Insurance is flattish: Bradesco runs one of the largest banking+insurance operations in the country. Its insurance business is almost twice as profitable (on ROE terms) than the aggregate business. Insurance grew premium by 12%, but did not grow operating income more than 3%, because of higher expenses. Even though the reserve book is growing (close to R$400 billion), the number of clients is flat across all categories (with pensions actually falling). Valuation Lots of negatives: The situation at Bradesco is clearly not very positive. The bank is recovering profitability only because of a fall in allowances (from a record in late 2023 when the increase in Brazilian rates was in full effect). Most other important drivers (NII, OpEx, market share) are not improving. The bank believes that this is a necessary step in building a more resilient bank that can offer more consistent returns. One positive is the price: Because of all of these negative aspects, the bank trades at what could be considered a cheap valuation on historical terms. As of 3Q24, the bank was producing a net income of about R$5.3 billion, or R$14.1 billion for 9M24. Annualized, this is about R$20 billion ($3.45 billion) or a 14% yield on the bank's $24 billion market cap. Such a multiple (7x) has been very rare in the bank's history and is well below the average. Currently, this is not evident in TTM figures because the period still holds 4Q24, the recent period with the worst net income performance. Data by YChartsData by YCharts Durability of income: How durable is the recent level of net income? Not very high, according to recent trends. The problem is that the improvement in net income came from ALLs decreasing, a natural process after a very stressed 2023 in terms of credit risk. However, NII is not growing, and OpEx is growing above fees and services and NII, meaning a decrease in recurring income capacity. This means, if anything, the current trend will not continue to be as positive in FY25, with a lower tailwind from ALLs. Growth potential: The bank has grown historically at higher rates of close to 8% in the Brazilian real. Currently, loans are growing at that rate but at lower margins, meaning flat profitability. As commented in my first article on Bradesco, the bank is facing challenges to its positioning, and losing share now is not a great sign. This trend could revert (the bank may become more aggressive later under better conditions), but I cannot be really confident about the asset or NII expansion in this context. Conclusions Bradesco is recovering from a challenging 2023. Net income has grown back above R$5 billion per quarter, potentially positioning the bank for a 14% earnings yield, which is not bad. I believe this is a fair yield, but maybe not opportunistic. One reason is that the bank's fundamentals are only temporarily positive on earnings (because of ALLs). This trend will revert if current forces remain in play. Second, the bank is not showing in which niches it is planning to grow in the midterm. Finally, other Brazilian banks, with higher profitability and better growth, trade at similar or lower valuations, like Santander Brasil or Banco do Brasil, which I covered as well.  For that reason, I believe Bradesco is fairly valued but not an opportunity, despite the potential high TTM yield to be posted in 4Q24.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.4","shortVersion":"4.29.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481767756"}