With all the turmoil in Europe and the financial system crumbling, who wants to invest in banks? Well, I have a bank that may change your mind. It is not located in Europe and has little exposure to other financial markets outside of its own country, Argentina.
The bank is Banco Macro S.A. (BMA). It is the sixth largest bank in the country in terms of deposits and has the largest private-sector branch network in Argentina. They focus on the low to middle-income individual and small to medium-sized business populations mostly outside of Buenos Aires. This puts the bank in a great position for a growing economy and as a pure Argentina play. The competition is lower outside of Buenos Aires and BMA grows by acquiring banks that have been liquidated by Argentina's Central Bank. This allows them to grow into less competitive locations without the need of opening a new branch. It is a dual win since a competitor is knocked out of the area and BMA moves in to take the business. Most of the bank's locations outside Buenos Aires are in places that have thriving export industries such as agriculture and mining. The export industries have benefited from the devaluation of the peso and higher prices for commodities. These local people then use the personal and business services Banco Macro has to offer. Its focused strategy will allow them to continue to grow and prosper even when other banks cannot.
Banco Macro is tied to their growing consumer base through checking and savings accounts as well as credit cards and loan options, which continue to grow. Yet, they also have a banking and payroll system for companies. They are the only bank in Argentina to have profitability for 40 straight quarters as of December 31, 2011. This is mostly due to the personal service that is present at all of the branches. Banco Macro believes the high level of customer service and variety of services allows them to capture more loyal customers and continue to generate revenue through tough economic times.
Furthermore, BMA also has many agreements that have earned them consistent revenue. The bank benefits from Argentine regulations that require all employees to maintain Plan Sueldo accounts for wages which is a large part of BMA's payroll services. The bank is the exclusive financial agent for the Misiones Provincial Government through at least December 31, 2019. The relationship started in 1996 and has had two extensions since then. The bank also has a similar agreement with the Salta Provincial Government through March 1, 2016, the Jujuy Provincial Government through November 1, 2014. The agreements mentioned above provide over $200 million in assets to the bank.
There are some parts of the business that do worry me though. BMA is trying to expand the offerings of medium and long-term credit as demands increase. This may help them gain more clientele but the Argentine economy is unpredictable and may hurt them if the economy does not grow at expected rates. In addition, the annual report speaks little of the evolving economy of Argentina and the political risks of the financial system there. The government borrows money from its people in terms of the Central Bank and pension funds and may hurt the long-term growth of the country. These concerns are important to consider, but the bank is still financially stable.
BMA's valuations are very good and it is what attracted me to the stock. As seen in Table 1 the valuations are great when compared to the industry. BMA also has increasing revenues and earnings for the past 8 years with double digit growth: it has been about 25% for both over 3 years. The firm has been consistent in growing its presence as well as its revenues even after the two financial crises in the last 12 years. The debt to equity level is low as well, showing it has control over its lending and should not run into large problems if issues arise. If all of the information previously explained were not enough, BMA kicks out a 17% dividend. The dividend payment has varied greatly over the years but a payment of some amount has been paid.
Table 1: Valuation Ratios
The valuations are very low because the stock has dropped to levels not seen since the beginning of 2009. Whether the stock has bottomed is difficult to say and depends on the climate of Argentina and its uncertain political future. However, the stock is only covered by one analyst so it is unlikely to have violent swings based on earnings releases. The future prospects of earnings look to be staying around 20%.
Overall, BMA is a value buy. While the global economy is unstable and Argentina even more so the possible reward for owning such a high quality and consistent bank is well worth the risk. It has no exposure to Europe and has good long-term prospects especially if Argentina grows. With the slowing of Asia and deterioration of European stocks where else are you going to get international exposure with such a good dividend and valuation?