Equity Analysis /
Mexico

Gentera: Quarterly Report 2Q22: Profit doubles and favorable dynamics continue

  • Gentera recorded another extraordinary quarter achiving all-time highs in both profits and loan porfolio

  • This was because of Compartamos Banco portfolio solid growth, Financiera Peru recovery, and ConCredito advance

  • Given the favorable figures we observe an interesting valuation reduction, P/E multiple fell from 9.0x to 7.4x

Marissa Garza Ostos
Marissa Garza Ostos

Head of Equity Research

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Banorte
2 August 2022
Published byBanorte

Profit doubles and favorable dynamics continue

  • Another extraordinary quarter, which should be well received, achieving all-time highs in both profits (MXN 1.3 billion) and portfolio. The results make us confirm it in our top-picks

  • Indicators continue to improve. The NIM increases to 33.3% and NPL fell to 2.5%, better than pre-pandemic levels. The digitalization strategy and dynamics in the environment remain favorable for profits

  • By incorporating better prospects and a 2H22 of sustained recovery, we raised our PT to MXN 21.00, which represents a 2022e P/E of 7.4x – similar to T12 and below the 8.1x L3Y. We reiterate BUY

It continues to exceed expectations and reach all-time highs. Gentera surprised again, with positive results, confirming a more accelerated recovery inertia than expected, and whose trend we expect to continue in an environment with favorable dynamics for the company. The loan portfolio reached another record level, advancing 29.8% y/y and standing at MXN 50.802 billion. This is the result of: (1) the 39.5% growth in Compartamos Banco's portfolio given the solid performance observed in Mexico; (2) the recovery of 20.2% y/y in Financiera Perú; and (3) the advance of 32.2% y/y in ConCrédito. Thus, financial income increased 21.5% y/y. Interest expense rose 59.3% y/y as a result of the implementation of IFRS-9, which now includes costs derived from the origination of the loan and interest related to leases – previously classified as operating expenses. In this way, the Financial Margin grew 17.8% y/y, aligned with our estimates. Meanwhile, provisions decreased marginally by 0.9% y/y due to the strong origination process, but mainly as a result of Peru's portfolio improvement. With this, the NIM recovered to 33.3% (vs 28.1% in 2Q21 and 31.8% in 1Q22). Non-performing loans continued to decrease, standing at 2.5% vs 2.6% in 1Q22, supported by Peru’s recovery and the excellent dynamics that remain in Mexico. Under that context, net income increased 100.6% to MXN 1.310 billion and ROE recovered to 16.0% vs 13.5% previously. With the results we observe a very compelling valuation, given that the P/E multiple fell from 9.0x to 7.4x

2022 Estimates Update

A positive 2H22 is expected, better than originally anticipated. The results registered a very solid recovery trend, given the favorable environment dynamics, with a rise in interest rates more accelerated than expected, which is undoubtedly favorable for the company, and due to the assertively implemented digitalization strategy, which will be the growth trigger for the years ahead. Recalling that recently, Gentera improved its 2022 guidance by anticipating an EPS between MXN 2.45 and MXN 2.55 (vs previous from MXN 2.05 to MXN 2.15), representing annual increases between 66% and 72%, we are optimistic that the company could even exceed them on the back of this quarter’s results. The aforementioned is based on: (1) the growth progress and operating trends in both the Mexican and Peruvian operations; (2) the strategy of strict origination, which will allow to manage control over  assets’ quality; (3) the digital transformation process on which it has focused and that will allow a more accelerated and arranged progress, while continuing with the commitment to achieve greater financial inclusion and seeking to serve more customers in a more efficient way; and (4) strict expense control.

That said, we have decided to incorporate the figures for the quarter and improve the profit outlook. In this way, our estimates for 2022 assume a loan portfolio growth of 17.2% y/y to stand at MXN 54.175 billion (vs MXN 49.232 billion previously). With this in mind and considering the higher interest rate environment, the Financial Margin could increase 20.4% y/y to MXN 24.646 billion (vs MXN 23.245 billion previously), and risk-adjusted could stand at MXN 19.734 billion, representing a year over year growth of 18.9%, considering 26.5% y/y advance in provision levels. With this, the NIM would stand at 30.9% vs 28.7% in 2021. Meanwhile, assuming a single digit increase in operating expenses, even with the implementation of new campaigns and the execution of strategic initiatives, net income would stand at MXN 4.463 billion (vs. MXN 3.056 billion previously), aligned with the top line of the company's guidance, and representing a year over year increase of 70.0%. The strict origination will be reflected in an NPL at 2.5%, with a ROE at ~19%.

Valuation and PT of MXN 21.00

We raised our PT to MXN 21.00 from MXN 16.50 previously, and once again reiterate it in our top picks.  With the quarter results, the P/E multiple showed a very interesting reduction to 7.4x vs 9.0x previously. Meanwhile the P/VL remained stable at 1.2x. In that sense, by incorporating better prospects and a 2H22 of sustained recovery, we raised our price target to MXN 21.00, which represents a 2022E P/E of 7.4x, similar to T12. This multiple might seem conservative, falling below the three-year average of 8.1x and the comparable average of 8.5x. However, we prefer to be cautious given the prevailing growth challenges and a higher cost risk environment. Our target price represents a return of 22.4% on current prices, attractive in our opinion, so we reiterate our BUY recommendation.  We continue to think that Gentera's shares are a very interesting investment alternative, with sustained growth, attractive valuation, and limited risk.

Relative Valuation

Source: Bloomberg