Papa of Four's  Instablog

Papa of Four
Send Message
If you choose to follow me please send me a message telling me which article got your attention Love the trill of the hunt. Finding that little gem which is set to take off. I check daily and will trade partial position to accumulate shares for the longer haul. I have been trading for a while,... More
My company:
  • Brazilian Banking Should Pay 7% Dividend In 2014 5 comments
    Jan 15, 2014 10:16 AM | about stocks: BAC, BBD

    Article rejected by SA so posting as instablog.

    Not too very long ago everyone was in love with the BRIC countries and sick of the PIGS. Over the last twelve months there has been a complete reversal of fortune. Europe is seen by many as being much stronger and could lead us higher. By comparison Brazil has seen its currency devalued by over 13%. At the beginning of December I suggested that early January may be a good time to go shopping for ADR's. A few days later while researching "The World Cup, A World of Opportunity" I came Across (NYSE:BBD).

    Banco Bradesco SA is a Brazil-based bank that I highlighted in the article. I feel that the recent price decline makes it an attractive proposition for 2014. Although I believe it will benefit from the World Cup this year and the Olympics in 2016, there has to be more to it to get my attention.

    The Basics

    Price $11.66 Mkt Cap 50 Billion

    EPS (NYSE:TTM) $1.37 RevenuePS $6.14

    CashPS $23.46 Revenue Growth Q(yoy) 6.1%

    P/E 8.54 FP/E 8.20

    Yes this stock is very unloved, the P/E 8.54 says it all. Compare that to something like Bank of America (NYSE:BAC) which has a P/E 25.5 and it makes no sense. Admittedly the bank has missed earnings for each of the last six quarters but by a fraction of a penny. Bank of America missed by 50% in Q1 2013 a full $0.12 per share. Banco Bradesco's earnings have been extremely stable especially given the headwinds caused by currency devaluation.

    2012 Q1 0.38  
    Q2 0.35  
    Q3 0.34  
    Q4 0.34  
    2013 Q1 0.35  
    Q2 0.34  
    Q3 0.32  

    Earnings for the fourth quarter and full year 2013 are due out on January 27th. The low estimate for the quarter is $0.31. If we add that to the rest of the results for the year we get to $1.32. The current consensus estimate for FY 2013 is $1.30. To put it another way; If they have their worst quarter in four years $0.31, they still beat full year estimates by $0.02. Historically Q4 has been equal to, or better than, Q3 so 0.32-0.34. The high end of estimates would just make more sense. I will go out on a limb and suggest they will report 0.35. Even without beating all expectations on the quarter they should still beat for the year and a low ball P/E 10 translates to $13.20 almost 20% upside.


    If you believe that China is not dead or feel they might show a pulse in 2014 Banco Bradesco might be the way to go. All of Latina America will benefit from any uptick in demand.

    As I mentioned in my previous article they will also benefit from the World Cup and the Olympics. Foreign transaction charges at their ATMs will be big business for both events. This will be nothing compared to some real growth in their economy. If you can add any kind of support from the Brazilian currency and Banco Bardesco could be headed for all times highs. A P/E 15 on 2014 estimates gets you to $21.45 and I do not think that is unreasonable.


    I think that Brazil is just too hated. The inconsistencies between analysts' quarterly and annual estimates are almost inexplicable. The only thing I can think of is that they have gone to sleep on this one. Perhaps they think that it is so hated that no one is paying any attention any more.

    BBD Chart

    BBD data by YCharts

    From a technical point of view we are trading near long term support. If we can hold above $11.29, the previous low, we should form a solid W bottom. I anticipate price appreciation from now until earnings and continued gains throughout the year. I have a cautious price target of $20 almost a double from here. I almost forgot about the dividend. Regardless of what else happens the dividend should pay you around 7% next year. The small monthly dividends are not much to talk about, but the semi annual additions bring it up to a 6.5% yield relative to today's price. We have had over a 10% decline in price since my last article and I feel that now may be the time to get involved with Banco Bradesco. At current levels the bank should be considered an income investment with the added bonus of capital appreciation.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BBD over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: This article may contain certain forward-looking statements. I have tried, whenever possible, to identify these forward-looking statements using words such as "anticipates," "believes," "estimates," "expects," "plans," "intends," "potential" and similar expressions. These statements reflect my current beliefs and are based on information currently available. Accordingly, such forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause actual results, performance or achievements to differ materially from those expressed in or implied by such statements. I undertake no obligation to update or provide advice in the event of any change, addition or alteration to the information contained in this article including such forward-looking statements

    Stocks: BAC, BBD
Back To Papa of Four's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (5)
Track new comments
  • vireoman
    , contributor
    Comments (1266) | Send Message
    I won't be buying BBD, as I've been buying BSBR on its way south. It is tolerable to be down when a stock pays you to wait like BSBR does (curr. yield of 5.24%). And I added after the huge payout of last week. The Brazilian banks will be back, but it does appear that the World Cup/Olympics are an example of over-reaching and a bad idea.
    15 Jan 2014, 01:53 PM Reply Like
  • Papa of Four
    , contributor
    Comments (752) | Send Message
    Author’s reply » Thanks for your comment.


    BSBR also has an attractive Div, but it did blow through the August low last week. BBD is still holding above which I find more encouraging as I said above. We do agree on one key point and that is "The Brazilian Banks will be back".


    I feel many will be surprised at just how well Brazil does off of the world cup. It is hurting now, but expect record numbers due to the proximity of all the other Latin American countries. The success of the Olympics rests on how well they do this year with the WC. Success in both translates into greater tourism for years to come.


    Thanks again
    15 Jan 2014, 02:25 PM Reply Like
  • CT Programmer
    , contributor
    Comments (1059) | Send Message
    I just think Brazil, for its various problems, still has quite a bit of room to stretch its legs. An expanding middle class means more banking, and I do see this as a fire sale. It's not like they have huge, crazy, unpriceable liabilities on their hands like the European banks. They just are in an economy that isn't running the breakneck pace it used to.


    Domestic equities have sucked the wind out of anything international, but that can't last forever. Places like Brazil are where the long-term growth is. I bought BBD when you first recommended it. Down a few points since then, but I think it has bottomed. Don't forget that BAC and Wells Fargo also were running something like a 12 P/E when it and every other domestic bank was unloved.
    15 Jan 2014, 04:52 PM Reply Like
  • CT Programmer
    , contributor
    Comments (1059) | Send Message
    BTW PoF, if you're looking for a new stock, take a look at NTWK. I've pointed them out on a few other articles that I've commented on. I think they have at least 150% upside still. Solid past revenues, but being hit for a delay in their new version and customers holding off upgrades until then. Once it is good to go, they'll be back up there. Solid international player with a long history in markets no one else even dares move into (like Pakistan).
    15 Jan 2014, 04:58 PM Reply Like
  • CT Programmer
    , contributor
    Comments (1059) | Send Message
    This is entirely speculation on my part... but NTWK is up 10% today, and I know Mark Gomes just put out a pick to his "PTT" insiders, to be published for the rest of us a few days later. I had sent him an email previously recommending he look into NTWK. Not saying its the pick, but strange it is up so much on no news. I know my little comment yesterday can't be responsible.
    16 Jan 2014, 02:09 PM Reply Like
Full index of posts »
Latest Followers


More »

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.