Flash Fixed Income Report /

Unifin reports strong Q3 results; reiterate Buy

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    21 October 2019
    Published by

    Unifin Financiera, S.A.B. de C.V. (UNIFIN), reported solid Q3 results, with growth across all the non-bank financial institution’s business segments. It also conducted successful liability management operations in the quarter that strengthened its balance sheet.

    Interest income in Q3 19 was MXN2.851bn (US$146.67mn), compared with MXN2.245bn (US$115.49mn) in Q3 18. The financial margin in Q3 19 was 16.2%, corresponding to MXN875mn (US$45.02mn), better than the MXN753mn (US$38.74mn) a year ago.

    Although operating and financial expenses grew to MXN284mn (US$14.61mn) in Q3 19, from MXN130mn (US$6.69mn) in Q3 18, opex as a percentage of sales improved to 11.0% in the current quarter, compared with 12.1% in the same period a year ago. This resulted in a slight decrease in operating income which was MXN591mn (US$30.41mn) in Q3 19, compared with MXN 623mn (US$32.05mn) the previous year.

    Perhaps most importantly, the bank's net portfolio reached MXN54.024bn (US$2.779bn), a 25.3% increase over the previous year. Of this, MXN39.377bn (US$2.03bn) corresponded to leasing, MXN2.594bn (US$133.45mn) corresponded to factoring and MXN12.053bn (US$620.09mn) corresponded to auto loans and others. This compares with MXN33.404bn (US$1.718bn) in leasing operations, MXN2.136bn (US$109.89mn) in factoring activities and MXN7.583bn (US$390.12mn) in auto loans and others in Q3 18.

    On a slightly negative note, the non-performing-loan ratio deteriorated in Q3 19, reaching 3.9%, compared with 2.9% a year ago.

    Total assets at end-Q3 19 were MXN74.755bn (US$3.788bn), compared with MXN58.446bn (US$2.961bn) at end-Q3 18. 

    Total liabilities were MXN64.945bn (US$3.290bn) at end-Q3 19, higher than the MXN49.104bn (US$2.488bn) at end-Q3 18.

    This increase was mainly the result of increases in the bank's funding sources: 

    Bank loans in Q3 19 amounted to MXN9.670bn (US$490.007mn) in Q3 19, compared with MXN7.316bn (US$370.72mn) in Q3 18; 

    Debt securities amounted to MXN15.992bn (US$810.36mn) in Q3 19, compared with MXN15.223bn (US$771.39mn) a year ago;

    Senior notes were MXN34.255bn (US$1.735bn) in Q3 19, compared with MXN41.592bn (US$2.108bn) in Q3 18.

    The above increases in funding (liabilities) were partially the result of UNIFIN's closing, on 3 July, of a US$220.6mn syndicated unsecured loan; new 8.375% senior notes due 2028 and amounting to US$450mn that were issued on 12 July; and a private offering of new 7% senior unsecured notes due 2022 in an amount of US$200mn that resulted from a reverse inquiry by an institutional investor.

    UNIFIN's bonds are trading as follows:

    The two new bonds:

    • The US$450mn 8.375% senior unsecured notes (BB/BB) due 27 January 2028 (issued at US$99.248) trade at cUS$103.154 (ALLQ) to yield c7.68% (g-spread 604bps; z-spread 607bps); and
    • The US$200mn 7.0% senior unsecured notes (BB/BB) due 12 August 2022 (issued at par) trade at cUS$102.882 (ALLQ) to yield c5.87% (g-spread 428bps; z-spread 425bps).

    The bank's other bonds:

    • US$400mn 7.25% senior unsecured bonds (BB/BB) due 27 September 2023 trade at cUS$104.592 (ALLQ) to yield c5.53% (g-spread 394bps; z-spread 392bps);
    • US$300mn 7.375% senior unsecured bonds (BB/BB) due 12 February 2026 trade at cUS$100.721 (ALLQ) to yield c7.17% (g-spread 558bps; z-spread 558bps);
    • US$450mn 7.0% senior unsecured bonds (BB/BB) due 15 January 2025 trade at cUS$100.438 (ALLQ) to yield c6.86% (g-spread 526bps; z-spread 526bps); and
    • US$250mn subordinated perpetual bond (B/B+) trade at cUS$90.084 (ALLQ) to yield c9.44% (to worst) for a g-spread of 715bps and an i-spread of 756bps.

    We believe the whole family of UNIFIN bonds remains attractive at current levels on carry, and that slight additional upside is possible as the bank continues to deliver solid results with strong growth across all its segments, particularly in leasing.

    We reiterate our Buy recommendation.