Grupo Financiero Shows Many Good Points, Rated a Buy

The Argentine brokerage firm Rava Sociedad de Bolsa S.A., on November 20, changed their outlook for the holding company Grupo Financiero Galicia S.A. (NASDAQ: GGAL) from HOLD to BUY.

Rava analyst Jorge Fedio bases the recommendation on sound fundamentals, and a low exposure to sub-prime related products in the Argentine bank sector, however upholding the view of strong correlation with international markets, and a trend which is still negative.

Grupo Galicia’s main subsidiary is Banco Galicia, where the holding company owns 93.6% of shares.

For the quarter ended September 30, 2008, the company reported net income of AR$66.3 million (US$19.9 million), which equals AR$0.053 per share.

At Inca Invest, we have taken another look at Grupo Galicia. We have made some comparisons with two other banks, which were randomly chosen; Deutsche Bank (DB) and JP Morgan (JPM).

Based on the financials reported for 3Q ’08 we came up with these key figures for the three companies:

click to enlarge

For the latest quarter, GGAL actually reported a net income nearly 50% above 4Q ’07. For the quarters 4Q ’07 through 3Q ’08, the company reported net income of (AR$44.6, AR$36.2, AR$42.1 and AR$66.3 million) respectively.

The financial strength throughout the year is not reflected in the share price. On the contrary, the share is down by nearly 75%, a decline of nearly three times that of JPM. This in spite of the poor results reported by JP Morgan, which for the last quarter was US$527 million, compared to US$2.971 million in 4Q ’07.

The P/E of 3.29 confirms the indication of GGAL as a possible BUY.

From a technical perspective, GGAL formed a Descending Triangle formation on November 4, which is normally a bearish sign. With a bullish break-out of RSI on November 21, followed by a price break-out from the Triangle on November 28, the stock shot up 11.76%, ending at $1.90.

In the short-term we expect to see testing of the resistance at 2.20, possibly another test of support at 1.50 as the ADR opened down today, Monday.

GGAL’s latest interim statements can be found in our download section.