Itaú and BB should continue to lead sector gains on the Stock Exchange – 08/13/2023 – Market

The disclosure of the balance sheets for the second quarter of 2023 by the major Brazilian banks reinforced the analysts’ positive view of the performance of Itaú and BB (Banco do Brasil) shares on the Stock Exchange.

The duo delivered the best results in the sector, with healthy growth in the loan portfolio and control of defaults, which makes room for the shares to follow the recent positive trajectory —in the year, until August 11, Itaú accumulates a 13% increase, while BB rises 42.4%.

Bradesco and Santander, on the other hand, showed negative numbers and were even more pressured, with aggressive action in the market when interest rates were at their lowest, now reflecting a greater need for reserves to protect against defaults, which puts pressure on the profitability of operations. In this scenario, Bradesco shares are up 6.9% in 2023 and Santander’s are up 0.11%. The Ibovespa advances 7.6% in the period.

José Eduardo Daronco, an analyst at Suno, says that the pace of recent months regarding the performance of the shares of large banks should be maintained for the remainder of the year, with more positive performances by Itaú and BB, and weaker performances by Bradesco and Santander.

According to him, BB has stood out mainly for its relevant performance in agribusiness, which has been the main responsible for the growth of the economy, and also for the relevant client base formed by civil servants.

“This year, federal civil servants received a salary increase, which increases requests for loans and financing”, says Daronco.

Head of stock analysis at Órama, Phil Soares considers that, despite the strong result of the public bank, the political risk intrinsic to the asset, as it is under government control, makes him prefer Itaú shares within the sector.

Nord’s partner and stock analyst, Guilherme Tiglia adds that, although there has been no clear evidence of political interference by the Lula government so far, the risk of being a state-owned company will always be present in the case of BB. Therefore, despite the good results of the public bank, the Nord analyst’s preference also falls on Itaú.

Considering the numbers presented by the largest private bank in the country, Soares estimates that the shares have the potential to appreciate between 20% and 30% over the next 12 months. “It is a very good level of appreciation, especially if we take into account that the financial sector is already well consolidated and does not have large growth legs”, says the specialist.

Daronco adds that Itaú has a portfolio more geared towards a high-income public, so that the increase in defaults has not impacted both the bank and private peers. “In addition, Itaú has greater exposure to other countries, mainly Chile, which has translated into good results”.

In a completely different sense, continues the Suno analyst, Bradesco and Santander have a bolder credit portfolio, focused on the C, D, E classes, and, after a more aggressive management in granting credit during the pandemic, ended up being much more affected by the high moment of default.

Eduardo Siqueira, an analyst at Guide, says that Bradesco and Santander have increased the supply of credit in an “unbridled way” in recent years, without proper risk control, in riskier lines such as cards, personal loans and overdraft.

“This meant that the two banks had to greatly increase provisioning [reservas contra calotes]”, says Siqueira. He adds that now the duo’s attitude is one of greater selectivity in concessions, but points out that it should still take a few months before the portfolio is renewed with better quality credits.

“We prefer to enter banks that are in strong operating moments”, says the Guide analyst, citing Itaú and BB as the preferred ones.

Levante analyst, Matheus Nascimento says that the recommendation is to avoid the shares of Bradesco and Santander for now, considering that the level of profitability of both, which was closer to 20%, today fluctuates around 11%.

Although the market’s expectation is for an improvement in the indicator as delays begin to recede, this improvement should come a little further ahead, in mid-2024, predicts Nascimento, who also has a more positive view for Itaú and BB.

Itaú and BB managed to better navigate the macroeconomic environment of recent years, especially in the period when inflationary pressure eroded the population’s purchasing power, with greater selectivity in granting credit and an early increase in provisions, says the Levante analyst.

He estimates a fair price of around BRL 33 for Itaú and BRL 61 for BB, which represents an appreciation potential of 20% and 28%, respectively.

In line with peers, Milton Rabelo, an analyst at VG Research, says that, for the second half of 2023, Banco do Brasil and Itaú should continue with more positive dynamics.

However, for a medium and long term horizon, given the transition of the monetary cycle, he assesses that Santander and Bradesco may surprise positively, with the drop in interest rates positively impacting defaults and the pace of growth of loan portfolios.

Soares, from Órama, also sees room for a recovery of Santander and Bradesco a little further ahead.

For the investor who has the stomach to endure a possible further deterioration of shares in the short term, to take advantage of a possible recovery later, the head of analysis says that he prefers to bet on Bradesco, considering that the bank’s shares are negotiated at a discount higher relative to its potential than Santander.

Soares says that the bank in Cidade de Deus, in Osasco, has never traded at such discounted levels as the current ones. “The moment is very favorable to invest in Bradesco shares, if the investor believes that the bank will really recover.”