Banco Santander Brazil (NYSE:BSBR) exists to serve its customers with financial products and services highly similar in nature to the major money center banks in the US. Due to the unique structure of Brazil's banking system BSBR has a competitive edge that would be nonexistent for a bank of its size in the US. In Brazil, six banks comprise nearly the entire banking industry controlling over approximately 90% of the assets throughout the entire system. BSBR is one of these six banks and through its strong levels of profitability and keen location in a demographic-rich area that is in need of financial services offers a highly feasible investment opportunity. This article provides an overview to BSBR's business model, highlights its asset composition as well as recent performance, and then concludes with seven reasons why BSBR is a strong buy at its current market value.
BSBR is responsible for attracting deposits and offering retail, commercial and private banking, as well as asset management services. In addition, BSBR extends consumer credit, mortgage loans, lease financing, mutual funds, insurance, commercial credit, investment banking services, and structured financial products to its customers. Currently, BSBR has approximately $250 billion in assets under management through its operations spread over 2,000 branches.
BSBR is a foreign stock that is currently trading at roughly $7 per share over the NYSE as an american depositary receipt. Figure 1 below illustrates the fluctuations in BSBR's market value per share over the past five years.
Figure 1: BSBR's Five Year Price Graph from Bloomberg
Seven reason why BSBR is a buy at its current market value:
- BSBR has a competitive edge over its peers in terms of its foot print in the industry. Its current stake in the deposit and loan market share industry wide is roughly 10%.
- Conservative regulation is prevalent among the banking industry in Brazil. Brazil is the third-largest bank to not be controlled by the Brazilian government.
- BSBR as an individual bank is highly profitable and combined with a strong positive outlook for the Brazilian market as a whole it is in a perfect position to excel in FY 2013.
- BSBR operates in a developing industry with enormous room to grow and expand the sale of its financial products and services into new markets. In contrast to the US, credit card services and insurance products are heavily underutilized in Brazil and this trend is already noticeable.
- BSBR's capital structure is already sufficient for expanding operations. Capital adequacy is not an issue and very little if any new equity would be required to be raised.
- BSBR's fair intrinsic value is right around $11.50 per share, making it a highly undervalued stock at its current market value per share.
- Six analysts that cover this company have a mean price target of $12.75 per share.
BSBR is a developed bank operating in a industry that has not fully developed. Immense room exists for BSBR's operations to growth and capture the growing need of financial products and services. In conclusion, BSBR's high levels of profitability make this company an extreme bargain at roughly $7 per share.
Sources: Bloomberg Market Data, Google Finance, & The Wall Street Journal.
Disclosure: I am long BSBR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.