Banco do Brasil reported a result that surpassed the most optimistic expectations of the friendship and was seen as an ‘oasis’ in a sector besieged by Americanas fraud and rising default rates.
Net income for the fourth quarter reached BRL 9 billion, 10.5% above consensus, with a ROE of 23% — the highest among banks.
For comparison purposes, Bradesco delivered a ROE of 3.9% in the fourth quarter, Santander Brasil, 8.3%, and Itaú, 19%
JP Morgan raised the share to ‘buy’ with a target price of R$56. The share rose more than 4% in the early followingnoon, at R$42.32.
BB also released its guidance for 2023, signaling a net profit of R$33 billion to R$37 billion (an ROE of around 20%). Analysts had R$31-34 billion in the model. In the median of consentthe growth would be more than 10%.
BB also expects its loan portfolio to grow between 8% and 12% in 2023, and the net financial margin (NII) — the bank spread — to grow between 17% and 21%.
The projection for the growth of the portfolio came in slightly above the estimates of the players private. CFO Ricardo Forni explained that this basically has to do with BB’s exposure to agribusiness, which has grown at rates of 25% a year over the last two years.
“Our assumptions are the same as the market for the economy and, in the Individual and Corporate portfolios, our guidance is very similar to the others,” he said.
Ricardo also pointed out that the guidance for 2023 is a “strong response” to the market’s doubts regarding the sustainability of the bank’s return.
“For 2024 and 2025, the ROE may reduce a little because the future perspective is for a reduction in interest rates and this affects the ROE. But we think it’s possible to run with an ROE around 18% to 20% in the long term.”
CEO Tarciana Medeiros, who took over less than a month ago, also signaled that the bank’s agenda should be one of continuity.
“Let’s keep what we’ve been doing best so far,” she said. “And more than the elaboration of a robust strategy, I believe in the execution of the strategy.”
In the fourth quarter, BB’s profit was boosted by positive results in the top line added to solid efficiency gains, wrote Henrique Navarro, from Santander.
“Banco do Brasil also benefited from the “other operating income” line, which included a update in guarantee deposits, reversal of provisions, and operations with cards.”
These factors combined led the bank to deliver a robust profit despite the increase in defaults and a significant increase in provisions due to the Americanas case.
Unlike Itaú and Bradesco, which provisioned 100% of their exposures to the retailer, BB provisioned only 50% (or R$788 million) — which already generated a 45% increase in provisions compared to the third quarter.
The bank’s default of more than 90 days had a slight increase of 0.17 percentage points to 2.51%, reflecting a more challenging macroeconomic scenario that has affected all banks. Despite the increase, the number was “in line with the strategy of changing the portfolio mix to lines of credit with a better risk-return,” wrote Eduardo Rosman, from BTG.
Credit card NPL, for example, rose just 0.21 points to 10.5%, a sharp slowdown from Q3’s high of 2.3 points. For Rosman, this result reflected the measures taken in the second half to reduce originations in ‘open sea’ in this segment.
BTG also noted that the highlight of the quarter was the NII, which rose 8% compared to the third quarter and more than 40% year-on-year, driven by strong volumes and a repricing of the loan portfolio. BB also had strong gains with treasury, thanks to a scenario of higher interest rates. Those earnings were up 8% quarter-on-quarter and 140% year-on-year.
“Banco do Brasil reported the best results among the banks we cover and management confirmed our optimistic view for this year,” wrote Pedro Leduc of Itaú BBA.
BB’s good result shed light on the extremely cheap valuation of the state-owned bank.
If it delivers the profit guidance for next year, Banco do Brasil would be trading today at just 3.3x its profit with a dividend yield of 12%. Looking at the price-to-book multiple, the bank trades at just 0.6x. “We understand the risks of being a state-owned company, but we believe the stock is too cheap to ignore,” wrote Rosman.
Peter Arbex
