The expectation of most market analysts is that Banco do Brasil (BBAS3) would be the positive highlight of the earnings season among large cap banks.
However, more than that, the state bank managed to surpass even more the already optimistic projections of the market, with many houses, such as XP and Itaú BBA reinforcing the preference for the action within the sector after the balance sheet released the day before. As a result, even on a day of risk aversion in the market, the shares opened higher: at 10:09 am (Brasília time), BBAS3 assets rose 2.01% to R$34.98.
Adjusted net income was a record BRL 6.6 billion in the first quarter of 2022 (1Q22), a performance 34.6% higher than that reported in the same period of 2021. Compared to the fourth quarter of 2021 (4Q21), the increase in profit was 11.5%. The result was above expectations. The market consensus was for a profit of BRL 5.34 billion, according to analysts consulted by Refinitiv; that is, it exceeded projections by about 24%.
The positive surprise can be explained mainly by lower provisions compared to the fourth quarter, while it rose less than peers in the annual comparison. Unlike private rivals, BB raised the expense with provision for expected losses with default in a much less intense way: it rose 9.3% in the annual comparison, to R$ 2.758 billion.
The provisions below were partially offset by the lower margin with clients, as funding costs continued to be pressured by the high Selic rate, highlights Bradesco BBI in an analysis report.
Return on Adjusted Equity (ROE) for the quarter, meanwhile, rose 3.1 percentage points to 17.3%, with positive trends.
BB also saw its expanded loan portfolio grow 16.4% in 12 months, to R$883.5 billion at the end of March, with emphasis on companies and agribusiness. The bank’s forecast for 2022 is an increase of 8% to 12%. Meanwhile, according to BBI analysts, rates and opex – operating expenses – were within expectations.
“We also highlight that the bank showed a slight deterioration in the NPL rate (NPL), but well below its peers, reflecting the lower exposure to individual loans, which deteriorated in the quarter, while the corporate NPL improved and the agribusiness NPL remained stable. stable”, assess the analysts. The delinquency rate over 90 days was 1.89%, compared to 1.95% a year earlier and 1.75% in 4Q21.
As a result, the coverage ratio (which represents the proportion that the provision for credit risk is able to cover non-performing loans) decreased, but remained well above its peers. The index went from 325% in December 2021 to 297% in March 2022.
As highlighted by Bradesco BBI, the numbers showed positive trends, as they reflect the bank’s defensive portfolio. “In addition, as the bank has one of the highest coverage ratios in the segment, it was able to guarantee lower provision expenses in the quarter. In fact, although its revenue has remained pressured by higher interest rates, we believe that this was already widely expected by the market”, the analysts point out.
They also point out that these 1Q22 annualized results were at the top of the net profit guidance (R$23 billion-26 billion), while tariffs were above the 4.0-8.0% range and opex is in the midpoint (4.0-8.0%).
Credit Suisse analysts highlighted possible upward revisions to estimates for the company after the result.
“We believe there is a possibility of revising the consensus increase on earnings for 2022, of R$23.6 billion, currently at the lower limit of the company’s guidance of R$23-26 billion and our own projection of R$24, 2 billion”, assess the analysts.
Credit reiterated its outperform recommendation (a performance above the market average) with a target price of BRL 45, an upside potential of 31% compared to the previous day’s closing, assessing that the stock remains one of the bank’s main choices in the sector. , together with Itaú (ITUB4). “We see Banco do Brasil with the largest valuation asymmetry within the sector in Brazil, especially considering the strong earnings momentum driven by the strong performance of NII, leading to high levels of profitability”, they assess.
XP analysts point out the profit of R$ 6.6 billion above expectations and also point out that, if an exercise is carried out annualizing the quarter’s data, it is possible to see that the numbers “are running above the guidance”. Thus, they also see a chance of an upward revision in the expectations contained in the market consensus.
In the quarter, he considers, the financial margin reached R$ 15.3 billion, an increase of 5.6% compared to 1Q21 and below the guidance for the year. “This performance can be attributed, mainly, to the higher cost of funding and the time required to transfer these higher interest rates to credit operations”, they assess.
The positive highlight was the 19.6% growth in the loan portfolio, well above the 8-12% guidance range, indicating that demand for credit remains strong and should allow for the recovery of the Net Interest Margin (NII) through the transfer of higher funding costs to new loans.
XP analysts reiterated BBAS3 as the industry’s top pick. The recommendation is to buy with a target price of BRL 52, an upside potential of 52% compared to the previous day’s close.
Itaú BBA also reinforced its preference for the stock in the banking sector. Analysts point out that net interest income was up despite the pressures, service revenue was modest but still in line with expectations, while total expenses fell in the quarter.
“Trading at attractive multiples, BB should present the highest earnings growth and the best credit quality among the large banks under our coverage. Therefore, it continues to be our preference in the sector”, the analysts point out. BBA has an outperform recommendation (above market average performance) for BBAS3 assets, with a target price of R$44, an upside of 28% compared to the previous day’s closing.
Morgan Stanley stressed that there was solid credit and fee growth, lower cost of risk and effective cost management. As for what is also seen by peers in the sector, the bank’s default rate rose on a quarterly basis. That said, the default rate still fell year-on-year and remains well below pre-Covid levels, the bank said.
Morgan analysts reiterate the overweight recommendation (above market average exposure) for the BBAS3 share, with a target price of BRL 57, or a 66.2% appreciation potential compared to the previous day’s close, also highlighting an overview optimistic about Brazil’s large-cap banks.
Thus, BB’s more positive than expected results made many analysts confirm the positive projections for the state-owned bank. One of the exceptions, however, is Bradesco BBI, which continues with a neutral recommendation for the BBAS3 share, with a target price of R$ 40, or a potential increase of 17% in relation to the last closing.
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