Waterworld Capital
Public Markets Commentary
Banco Santander Brasil offers exposure to a stronger Brazilian currency, with a dividend yield above 7% and consensus estimates of sharply accelerating EPS. Its post-election pullback does not make sense. x.comÂ
JPMorgan looks remarkably cheap against nearly every other bank despite being the best of them. Its forward P/E looks to be around 13. x.comÂ
European equities offer relatively low cross-region valuations alongside excellent fundamentals across infrastructure, aerospace, space and defense, financials and other industrial segments. This is the most bullish outlook on the region since after Liberation Day last year. Ferrovial, Societe Generale, RWE, OHB, BNP Paribas and Nexans are named as expressions of that view. x.comÂ
U.S. Bancorp is cheap against its earnings at 11x, and 10x next year's, versus the 12x banks usually get. Fair value runs $61.28 to $77.99, or 12x next year's $5.80 EPS give or take 12%, above the $56.49 price. The call rests on valuation levels from reported earnings and estimates only, not fundamental work. x.comÂ
Bank stocks look buyable if systematic selling is reacting to a flatter yield curve: the front end that drives earnings has barely moved. JPMorgan and Citi card spending rose 10% and 13%, and Citi and Wells Fargo reported lower credit losses. Wells expects steady margins and improving interest income as loans grow and old fixed-rate assets roll into higher yields. Funds crowded into banks before results, limiting near-term buyers. x.comÂ
Lloyds Banking Group is the kind of bank to avoid: a mature, commoditized, highly leveraged retail bank whose results depend on interest rates. x.comÂ
Banks' weak response to earnings despite low expectations warrants caution into the rest of Q3 reporting. JPMorgan, Wells Fargo, Citigroup and Goldman Sachs all fell after mixed results, while the bank ETF also declined. x.comÂ
XP Inc. is an average company trading too richly. It sits at roughly the same valuation as US peers such as Morgan Stanley and Raymond James, which it doesn't deserve given Brazil's higher discount rates. A hard rally on the day makes sense, but the valuation does not. x.comÂ
European banks are a structural re-rate of an industry priced like a casino that can trade like a utility. They trade at 8.5x earnings with a 6% dividend yield plus 3% buybacks, and 1.4x tangible book for an expected 16% return on tangible equity, and have beaten the Nasdaq-100 for five years. Cost control, capital returns and steady management run across the sector; Monte dei Paschi, BBVA and ABN AMRO are one trade. A Russia-Ukraine resolution, possibly soon, would lift Europe and Raiffeisen. … Show more
The big six US banks should report great Q2 results as the front line of a solid economy. Net interest income, fee growth, steady credit trends and capital levels all look supportive, and valuations remain cheap, leaving opportunities to add. x.comÂ