On Monday, JPMorgan (NYSE:JPM) adjusted its price target for Banco do Brasil SA (BBAS3:BZ) (OTC: OTC:BDORY) shares, reducing it to R$31.00 from the previous R$33.00. Despite the price target adjustment, the firm maintained its Overweight rating on the stock, indicating a positive outlook on the bank's performance.
The JPMorgan analyst noted Banco do Brasil's status as one of the largest banks in Brazil, with a substantial presence in the country's asset and loan markets. The bank's loan portfolio is described as defensive, with approximately 65% comprised of agribusiness and commercial loans, which have historically shown lower delinquency rates.
While acknowledging an uptick in non-performing loans (NPLs) within the agribusiness sector, the analyst believes this trend represents a return to historical norms rather than signaling a significant credit cycle downturn. The bank's position in the agribusiness sector, which has been a key driver of Brazil's GDP growth, was highlighted as a strength, along with its resilience against fintech disruption due to its exposure to the public sector and agribusiness.
The analyst also pointed out that Banco do Brasil has additional financial safeguards in place, such as insurance and collateral. Despite expectations that the bank's return on equity (ROE) may have peaked and could gradually decline due to various factors such as competition from Patagonia and lower interest rates, the valuation was still considered attractive.
In conclusion, JPMorgan reaffirmed its Overweight rating for Banco do Brasil, citing the bank's appealing valuation. The firm underscored the bank's potential for good carry, with an estimated 10% dividend yield based on a 45% payout, and the prospect of double-digit growth in book value.
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