Banco de Comercio BANCOM

Transcription

1 November 24, 2008 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio November 24, 2008 Banco de Comercio BANCOM Cover monitoring: Constant Investment Investment Recommendation: MARKET PERFORM VALUATION E UPA P/UPA EBITDA P/EBITDA 3.08x 2.76x 2.36x Capitalization Share Information Circulation Stock Share 68,462 Range (52 weeks) - (Thousands) Capitalization Value (Soles) 68,462,000 Share Performance - Company Value (Soles) 67,156,000 Dividends paid 0 Daily Volume Average 12 - Book Value per 1 months share p/vl 1 Beta 1.06 General Profile of the Company Location: The offices are located in San Isidro, Lima, Peru Industry: Banking sector Description: The Commerce Bank is progressively operating within the Peruvian financial market in the micro financing segment Products and services: Products for small and micro companies. Website: Analysts: Juan Delgado jrdelgado@pucp.edu.pe Wilfredo Lafosse wlafosse@pucp.edu.pe Arturo Rodriguez arturo.rodriguez@pucp.edu.pe Investment Research Manager: Eduardo Court ecourt@pucp.edu.pe Advisor: Jorge Guillen jguillen@pucp.edu.pe The BURKENROAD REPORTS PERÚ are produced solely as a part of an educational program of Tulane University s A.B. Freeman School of Business in conjunction with CENTRUM Católica School of Business. The reports are not investment advice, and you should not and may not rely on them in making any investment decision. You should consult an investment professional and/ or conduct your own primary research regarding any potential investment. 1

2 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio November 24, 2008 MARKET VALUE OF THE COMPANY Figure 1. Market Value of the Company. Note: From the Superintendence of Peruvian Banks, SBS. The share value during the last four years has been maintained at S/ COMPANY S DESCRIPTION This institution started its operations on the 27th of September, 2004, as a result of a simple reorganization when the ex Commerce Administration transferred a patrimonial block to the new Banco de Comercio (the Bank from now on), which is made up of goods, rights, obligations, and guarantees that count on the necessary quality for the normal unfolding of banking operations. It is part of an economic group directed by the Police and Military Pensions Fund, which also includes Commerce Investment Bank (INVERPECO), Peruvian Store Commerce (ALPECO) and the company Commerce Administration S.A. At the end of January 2008, the Bank developed its activities through a network of 17 agencies (15 in Lima, 1 in Arequipa and 1 in Ica), 9 Special Offices for attention to the public and today it has a total of 554 employees (486 in December 2006). It is important to mention that since its restructuring in 2004, the Banco de Comercio has never quoted any shares in the Lima Stock Market. Shareholders The founding partners of the Banco de Comercio are the Commerce Administration S.A. with a contribution of S/ , and Peruvian Store Commerce S.A. (with a contribution of S/. 500); both are legal entities constituted in the country. Currently, the main shareholder of the Banco de Comercio is the Military Police Pensions Fund (CPMP), an institution legally constituted with public rights in the country, by transfer of shares carried out in its favor by Commerce Administration S.A. on the 14 of January 2005; it had previous approval from the Banking and Insurance Superintendence with the Resolution SBS No , issued on

3 November 24, 2008 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio Table 1. The Shareholder Shareholder Percentage Military Police Pension Fund 99.99% Alpeco 0.01% Total 100% The Banco de Comercio has been progressively operating within the Peruvian financial market, in the micro financing segment. Within this market a favorable evolution has been registered in the quality of its assets, a result of the growth of placements, a greater efficiency in portfolio management, the implementation of risk policies, therefore better operative controls. As it was previously mentioned, the Bank competes within the small bank category, mainly with the Banco del Trabajo, Mi Banco, BIF (Banco Interamericano de Finanzas) and the Banco Financiero. As it can be appreciated, the Banco de Comercio maintains its management and profit ratios at the industry level and better than the majority of its direct competitors. Figure 2. Evolution of liquidity (%) in national and foreign money 3

4 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio November 24, 2008 Figure 3. Administrative Expenses over Profitable Assets Figura 4. Financial Income over Profitable Assets Figure 5. Administrative Expenses over Financial Income. 4

5 November 24, 2008 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio Segments in which it operates Figure 6. Medium Portafolio Note: From the Banco de Comercio Medium Company Banking: The objective are companies that turnover around US$ 750 thousand and US$ 15 million annually, with a focus on businesses with high profitability and controlled risk offering products and foreign trade services, sales financing, commodities financing (fish meal, cotton), bonds and letter of discounts. Figure 7. Small Enterprises Note: From the Banco de Comercio Small Company Banking: Since 2005, they are developing their operations with small formal companies, as it is a segment with very high profitability and diversified risk. Targeted market is companies with annual sales between US$ 250 thousand to US$ 750 thousand. They offer maxi-pyme product, credit leasing, credit, using COFIDE s credit line. Figure 8. Bank Portafolio and Agreements Wiith FF AA PNP Note: From the Banco de Comercio 5

6 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio November 24, 2008 FFAA-PNP Banking: The target market is made up by personnel of the Armed Forces and National Police at national level. It offers services through loan agreements and the discount modality from payroll, with a minimum risk and high profitability. Till today, it has offered 65 thousand loans to the personnel of these institutions. The entry to this sector has been facilitated by the Banco de Comercio and comes from the Military Police Pension Fund. Figure 9. Personal Banking Deposits Note: From the Banco de Comercio Personnel Banking: The institution s strategy continues to focus on deposits of individual people through CTS deposit campaigns, term accounts, and the launch of an end-of-year savings plan. Therefore, credit is given through agreements with a payroll discount for the personnel of private and public institutions. The participation of individual people s deposits represents 68% of the total number of deposits, which allows a better control of liquidity and, therefore, a greater decentralization of their resources. Cooperative Government Banco de Comercio Directory It is totally made up of civilians with extensive and recognized experience in the financing and business environment: Table 2. Main Directors President of Directors Vice President Directors Wilfredo Lafosse Quintana Cesar Peñaranda Castañeda Luis Montezuma Cárdenas Hernán Rodríguez García José Palomino Roedel Enrique Díaz Ortega Banco de Comercio Management Level This is made up of professionals with recognized experience in the financial system, independent from the administration of the CPMP. Part 6

7 November 24, 2008 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio of the management team of the Bank is maintained from the reorganization process of the entity, backed up by the current management which favors the fulfillment of proposed developed policies. The decided and permanent support of the main shareholder is fundamental for the implementation of the measures that the current administration is working on as part of the consolidation process of the Bank. Table 3. Management Level General Manager Administration and Finance Manager Risk Division Manager Internal Auditing Office Manager Legal Advisory Division Manager Banking Company Business Division Manager FFAA PNP CPMP Business Division Manager Process and Technology Division Manager Personal Banking Division Manager Accounting Department Manager Performance Office Manager Management Control Division Manager Carlos Mujica Castro David Ambrosini Valdez José Alvarado Valdivia Néstor Plasencia Angulo Fernando Choza Charro Gonzalo Muñiz Vizcarra Freddy Molfino Gutiérrez Fernando Melly Ravello Marisa Freire Trigoso José Agapito César Coronado Aguilar Miguel Carpio Flores SWOT ANALYSIS OF THE COMMERCE BANK Strengths 1. Positioning in consumption loans segment (low risk) to members of the military forces under institutional agreements. 2. Structuring of new areas specialized in development of new business lines. 3. Satisfactory cover of delayed portfolio with provisions. 4. Adequate short term and money achievements. Weaknesses 1. Elevated leverage and above system average due to positioning expansion and to low patrimonial level. 2. Despite showing a gradual improvement in achieving deadlines, there are still gaps between assets and liabilities between 6 and 12 months. 3. Low market participation (positioning and deposits). 4. Reduced office network, made up of 15 agencies in Lima, 1 in Arequipa, and 1 in Ica, as well as 9 Special Offices for public attention; attention through the 8 sale points of CEPEFODES and presence in some provinces through commercial managers. 5. Slight deterioration in bad debt. A low level is still observed for the objective segment of the Bank, but above the system average. Opportunities 1. Patrimonial strengthening would allow a greater expansion of operations. 2. Development of the market niche (Military force and National Police force) and its networks, through referral campaigns. 3. Deepening of positioning in the medium company segment. 7

8 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio November 24, Institutional agreement with CEPEFODES and other institutes; as well as business centers to deepen the PYME segment. 5. Incorporation of strategic partner. 6. Use of lower relative cost source funding (debts). Threats 1. Risk of over debt clients in the PYME and consumption segment. 2. Persistence in the fall of the financial margin due to the evolution of market interest rates and competition in the segment. 3. Increase of source costs in competition for term deposit funds. 4. Final resolution of tax contingencies in favor of SUNAT. 5. Elevated leverage could affect the rhythm of operation growth. FINANCIAL SUMMARY Table 4. Financial Summary of the last 4 years Year Assets Total Loans Total Social Net Deposits Capital Profit , , ,004 35,344 2, , , ,981 54,573 8, , , ,322 61,168 9, , , ,218 68,462 13,204 Table 5. Main financial ratios of the last 4 years ROIC Market Cap. EV/EBITDA ROE ,344 4, % ,573 1, % ,168 2, % ,462 3, % INDUSTRY ANALYSIS The improvement in economic activity is positively impacting growth and the deepening of the micro financing market. This industry is influenced by macro economic factors that determine and influence its growth, like GDP growth, inflation and the reduction of country risk. Figure 10. Exchange Rate and Inflation 8

9 November 24, 2008 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio These factors energize the economy and increase public and private demand. This growth has energized the demand of small and micro companies by formal financing and, on the other hand, the greater capacity of payment of these companies, as a consequence of the current dynamics, reduces the risk of non-payment, widening the base of potential clients within this segment. Figure 11. Risk Rating As a result, it has given entry to some micro financing entities in the market of Lima and the greater presence of the banks in a segment which was unattended until a few years ago, due to the better profit margins that are obtained with the micro company credit. Figure 12. Net International Reserves As shown on Table 6, 55.1% of credit positioning directed to micro companies is concentrated in five financial institutions, 4 of which correspond to banks and only one is an institution specialized in micro financing. The important participation in the positioning market that maintains Mi Banco and the Banco del Trabajo should be noted, which, despite belonging to the multiple banking system, they have specialized in the medium and micro company segment, competing directly with micro financing institutions (IMF). 9

10 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio November 24, 2008 Table 6. Ranking of deposits in November 2007 Enterprise Amount Participation (%) Cumulative Percent 1 B. de Crédito del Perú 25,523, B. Continental 16,409, Scotiabank Perú 11,064, Interbank 6,459, B. Interamericano de Finanzas 2,154, Citibank 1,699, B. Financiero 1,329, B. del Trabajo 955, Mi banco 935, B. de Comercio 652, Falabella Perú S.A. 443, HSBC Bank Perú 363, Santander Perú S.A ,989,668 Note: From the Superintendence of Peruvian Banks, (SBS) Table 7. Ranking of claims in November 2007 Bank Amount Participation (%) Cumulative Percent 1 B. de Crédito del Perú B. Continental Scotiabank Perú Interbank Citibank B. Interamericano de Finanzas B. Financiero Mibanco B. del Trabajo Falabella Perú S.A B. de Comercio HSBC Bank Perú Santander Perú S.A

11 November 24, 2008 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio Figure 13. Composition of Direct Loans (March 2008) Figure 14. Composition of Direct Credit (March 2008) Microfinancing Market The market regulated by institutions specialized in micro financing in Peru is mainly made up of three types of financial entities: Community Credit and Savings Funds (CMAC), whose ownership corresponds to Municipal councils; Rural Credit and Savings Funds (CRAC), of private capital, mostly aimed at financing companies in the rural area; and Small and Micro Company Development Companies (EDPYME), which are not authorized to receive resources from the public. Up until the 31 of December 2007, the number of IMF rose to 38, of which 12 corresponded to CMACs, 12 to CRACs and 14 to EDPYMEs. Figure 15. Evolution of Gross Loans (Milions of Nuevos Soles) 11

12 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio November 24, 2008 Between the year 2002 and December 2007 greater credit participation to micro companies (MES) is observed, which increased from 52.2% to 56.9%. The consumption credits have decreased their participation reaching their lowest level at the end of 2006 (23.8%); however, they present a slight recovery up to December Figure 16. Asset Quality Figure 17. Return on Equity vs Utilities The income of multiple banking to the micro financing segment has made the IMF attend to less banking systems and in smaller amounts, for which an increase is expected in the participation of MES credits and consumption still in medium term. Figure 18. Evolution of Net Interest Margin vs Interest Income 12

13 November 24, 2008 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio Therefore, this has made these institutions to offer financial products at more competitive rates, resulting in a progressive reduction of the spread of interest rates, with the purpose of maintaining market participation to the offer of multiple banking. Banking Industry Analysis Figure 19. Evolution of Assets (Milions of Nuevo Soles) As Figure 19 shows, the Community Funds still constitute the subsector with the best results; however, from 2005, the negative slope indicates profit loss, a direct consequence of a greater level of competition. Parallel to this, the achieved results by the CRAC and EDPYME show a reverse behavior to the CMAC, presenting a profit level above patrimony growth since 2005, with certain stagnation until the end of Multiple banking is currently made up of 15 companies and register assets of 128, 378 million nuevos soles (equivalent to US$ 43, 283 million), an amount that has increased 35.5% annually. Also, the industry has currently registered yearly increases in national currency credit of 46.8% and 26.8% respectively. Therefore, deposits in national currency are at a higher level at 57.3% in respect to last year and deposits in foreign currency rose to a higher level (19.4%) in relation to June Separating credit type, commercial credit makes up 62.4% of the total portfolio, which represents an annual growth of 25.9%; credit to micro companies (MES) represents 5.8% of the portfolio, with annual growth of 42.9%. Mortgage credit reaches 11.9% of the portfolio and finally consumption credit, which represents 19.9% of the total portfolio, registered an annual increase of 43.9%. It is important to point out that the annual growth observed in consumption credit is explained by the incorporation of a financial company in the banking company group. If, for comparative purposes, this company s portfolio were included, the annual growth of consumption credits would be 27.19%. 13

14 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio November 24, 2008 Figure 20. Direct Credit By Currency Figure 21. Total Deposits By Currency COMPETITION ANALYSIS The Banco de Comercio, during the last few years, is experiencing constant growth. Its participation in the market has been increasing, but its growth is limited by the leverage level allowed by the Banking and Insurance Superintendence. The Board of Shareholders has been increasing social capital of the company through capitalization of profits, which has allowed the annual widening of the positioning of the bank. This capitalization has been given through issuing shares at a nominal value of 1 nuevo sol. In the last three years, the bank has maintained elevated profit ratios, as Table 8 shows: Table 8. PEER Analysis Company Ticker Symbol ROIC Market Cap. P/ BV EV/ EBITDA ROE Estr. Capital Banco Financiero FINAN 0.22 S/.297, % Banco del Trabajo BANTRA 0.02 S/.118, % Mi Banco MIBAN 0.36 S/.113, % Banco de Comercio BANCOM 0.25 S/.68, % The profit indicators are still inferior in respect to the average levels of the system, but with the analysis of the Bank s direct competition it can be observed that it is within the average. Therefore, it is shown at patrimonial level, the Banco de Comercio is still below its close competition and the leverage level (capital structure) is higher than the industry level, but it is similar to that of the direct competition. 14

15 November 24, 2008 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio Figure 22. Global Leverage INVESTMENT SUMMARY The share price was calculated after 12 months at S/ using 5 methods that were pondered agreeing with weight: (a) profit price growth (PPG); (b) price over profit per share; (c) price over cash flow per share; (d) ratio value of the company over EBITDA; and, (e) discounted cash flow (DCF). The value of DCF is considered with higher deliberation takinginfo account that it presents greater precision. The profit price growth has successive weight (20%), by considering that it shows greater relevance than the other three methods. Table 9. Target Price. Weight Method Target Price Target Price x deliberation 35% Discounted Cash Flow S/ S/ % PPG (Profit Price Growth) S/ S/ % Price / Profit per share S/ S/ % Price / Cash Flow per share S/ S/ % Company Value/ EBITDA S/ S/ Weighted Average S/ To obtain the DFC the Weight Average Capital Cost (WACC) used was 11.10% and the perpetuity growth was 4%. Table 10. CAPM Risk Free Rate 3.80% Rate of long-term debt 7.50% Risk Premium 5.50% Risk Country PNC 1.90% 1.06 Beta 16,468 PAT 68,462 Beta Leveraged 1.24 Ke WACC 12.51% 11.10% Table 11. Valuation Free Cash Flow ,614 23,017 27,017 31,720 37, ,788 Growth to Perpetuity 4.00% VAN 371,852 All the amounts are in thousand of Soles 15

16 FINANCIAL REPORTS CENTRUM Católica - Burkenroad Latin America (Peru) - Banco de Comercio November 24, 2008 The Burkenroad Reports are about listed companies financial analysis, and small and medium Peruvian companies. They are made by CENTRUM Catolica s alumni, the Pontificia Universidad Católica del Perú Business School, and they are supervised by Finances, Economy and Accounting professors of the School. Instituto Tecnológico y de Estudios Superiores de Monterrey (ITESM), Instituto de Estudios Superiores de Administración de Venezuela (IESA), Universidad de los Andes de Colombia, Estudios Superiores Incolta de Colombia (ICESI), Escuela de Postgrado de Administración de Empresas de Ecuador (ESPAE), and the Universidad Francisco Marroquín de Guatemala in conjunction with Tulane University, develop the Burkenroad Program in Latin America. This project is supported by the Multilateral Investment Fund from the Inter-American Development Bank. This program enriched the human capital by providing training in financial analysis techniques and also pretends to facilitate access to financial sources by providing to financial institutions and investors with financial information. These reports evaluate financial conditions and opportunities investments in companies. The listed companies reports are distributed to domestic and foreign investors by using publications and financial information systems as the Infosel Financiero and Finsat. The small and medium companies reports are solely distributed to companies favored for being used in future private presentations to financial institutions or potential investors. Invesment plans and financial situation from the analyzed companies are shown to the financial community in an Annual Meeting. Additional information about Burkenroad Program, please visit the page web: Ph.D. Eduardo Court Monteverde ecourt@pucp.edu.pe Research Director Burkenroad Peru Reports CENTRUM - Business School of the Pontificia Universidad Católica del Perú Phone Nº: (511) Ph.D. Jorge Guillén jguillen@pucp.edu.pe Coordinator Burkenroad Peru Reports CENTRUM - Business School of the Pontificia Universidad Católica del Perú Phone Nº: (511)