Banco do Brasil (BBAS3) could shoot 50%, says Santander

02/04/2024 11:32

Banco do Brasil (BBAS3). Photo: Disclosure

Santander analysts recently raised their target price for Santander’s shares Bank of Brazil (BBAS3) in 2024, from R$75 to R$85, and maintained the purchase recommendation for the name, despite it not being the house’s preferred bank.

If realized, this projection would represent a 51% rally in shares of Banco do Brasilgiven that the shares are currently trading at around R$56 on the stock exchange.

The house’s justification for the increase in optimism with BBAS3 This is due to the expectation of a net profit in 2024 above past projections and also a lower cost of equity capital.

Analysts draw attention to the fact that the bank continues to trade at 0.84x in terms of price over book value per share for 2024 – a level that is “substantially below Santander’s target”, which targets 1.3x.

Furthermore, Santander highlights the following positive points:

Broad physical presence
Credit portfolio backed by agribusiness operations
Cheapest funding structure
Management of public sector funds with attractive rates
Main government bank for deals

“Banco do Brasil is currently trading at a P/VPA multiple of 0.84x, below the arduous period of 2015-16, when ROE reached 7.5% (2016). In comparative terms, BB’s ROE in 2023 was 22%. Therefore, as much as we understand the political risk of being a state-owned company, we believe that there is still an asymmetric upward risk in its valuation”, says Santander about the company.

Experts also point out that they recently held a roadshow with BB executives to discuss the outlook for 2024 and other relevant topics, including the impact of Banco Patagonia and the Argentine government’s measures.

“After the round of conversations, we feel comfortable maintaining our recently published projections about Banco do Brasil, although our report was published before the recent events in Argentina (strong exchange rate devaluation)”, notes Santander.