Grupo Financiero Banorte: Poised For More Outperformance

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Coming disconnected a beardown FY22 for Mexico's fourth-largest slope Grupo Financiero Banorte (OTCQX:GBOOY) (OTCQX:GBOOF), management's updated guidance points to different beardown twelvemonth ahead, supported by 'higher for longer' liking rates. In particular, nan FY23 ROE guidance of 19.5-21% was a cardinal highlight, arsenic nan slope continues to spot beardown margins and favorable plus value trends offsetting immoderate opex headwinds. With nan slope besides embedding blimpish macro assumptions, nan projected double-digit net maturation seems good wrong reach. In turn, expect stronger shareholders returns, implying upside to nan FY22 output of ~8% yield.

Also boosting nan entreaty of owning Banorte present is nan favorable operating backdrop comparative to nan remainder of LatAm - astatine a clip of monolithic uncertainty for cardinal regions for illustration Brazil and Chile, nan little political/economic uncertainty successful Mexico stands out. While nan banal commands a premium to book, this is good justified by nan best-in-class ROE; nan ~9x fwd net valuation (a humanities discount) besides screens favorably comparative to nan net maturation potential, presenting a compelling introduction constituent astatine these levels.

Grupo Financiero Banorte Valuation


Strong P&L Result connected Continued Loan Growth; Underlying Asset Quality Intact

Banorte's latest 4th was, for illustration erstwhile quarters, beardown all-around - nett liking income maturation was nan main header astatine +18% YoY, supported by a 6.7% nett liking separator (+60bps YoY). The only blemish was that header numbers were clouded by higher provisions astatine +33% YoY, though this was owed to a one-off deed to plus quality. As a result, non-performing indebtedness (NPL) statement was higher, on pinch an accrued costs of consequence and little coverage. That said, discourse is important - per management, this 4th was impacted by a one-off firm lawsuit that was well-covered by nan further reserves built successful anterior years. So moreover pinch immoderate normalization higher, underlying plus value remains beardown and good supra pre-COVID averages.

NIM Trend

Grupo Financiero Banorte

Fundamentally, indebtedness maturation continues to beryllium a root of strength, supported by a amazingly coagulated capacity successful nan firm conception this quarter. To recap, Banorte's performing indebtedness portfolio accelerated to +12% YoY successful Q4, good supra nan bank's anterior indebtedness maturation guidance of 7-9% for nan afloat year. The firm portfolio, while smaller than nan different cardinal segments, was nan standout, reversing nan anterior quarters' slowdown. Meanwhile, nan user (+15.0% YoY) and owe (+13.2% YoY) segments remained nan superior maturation engines.

Capitalization Remains Robust, Supporting nan Attractive Dividend

Banorte's superior adequacy ratio (CAR) stood astatine 22.9% successful Q4 2022, comprising a Tier 1 ratio of 22.5% and a CET1 ratio of 15.2%. While nan superior position was boosted by net retention, nan bank's wide CAR and Tier 1 ratios were mostly down YoY amid an acceleration successful risk-weighted plus growth, arsenic good arsenic nan FX effect connected Banorte's USD-denominated AT1s and Tier-2 notes. Still, nan capitalization remained good supra minimum requirements (for CET1 of 7.9% and CAR of 11.4%), arsenic good arsenic nan 17.9% period for TLAC (i.e., 'Total Loss Absorption Capacity' aliases nan information of superior disposable for write-downs aliases equity conversion successful a solution scenario).

Capitalization Trend

Grupo Financiero Banorte

Importantly, nan beardown superior position ensures Banorte has ample dividend-paying capacity - nan slope paid retired full dividends of MXN11.89/share successful FY22 based connected a 75% payout ratio of full-year net (implying a high-single-digit % yield). While this year's output was helped by an bonzer dividend, nan beardown superior buffer and management's committedness to paying retired a minimum of 50% of net earlier considering buybacks aliases typical dividends supply income-focused investors pinch a batch to for illustration here.

FY23 Guidance Impressive but May Still beryllium Conservative

Alongside nan Q4 results, guidance gave investors further logic for optimism pinch a beardown FY23 guidance - nett income is group to autumn wrong nan MXN50.5-52.5bn scope (+11-15.5% YoY), implying an awesome 19.5%-21% ROE. Underlying nan return floor plan is 30-50bps of separator description , indebtedness maturation of 6-8%, and a 1.6-1.8% costs of risk, signaling different twelvemonth of double-digit % net maturation for nan bank.

FY23 Guidance

Grupo Financiero Banorte

While a higher opex tally complaint could beryllium a headwind, nan blimpish macro assumptions mean these numbers are apt achievable. Of note, nan guidance assumes a steep economical slowdown astatine GDP maturation of 0.5-1.5% (vs. ~3% successful FY22), moreover though home request has been resilient truthful far. Private in installments growth, for instance, amazed to nan upside successful nan low-teens % successful November and looks group to outperform into FY23 arsenic well.

Poised for More Outperformance

Banorte has been reaping nan benefits of a higher complaint situation without compromising connected plus quality, pinch guidance indicating different twelvemonth of beardown ROE procreation successful FY23. All successful all, I spot nary logic why Banorte won't proceed its beardown net momentum - nan higher liking complaint backdrop looks present to stay, and truthful does nan bank's low-cost backing base, some of which should lend to sustained double-digit net growth. While nan banal has rallied connected nan Q4 outperformance, nan existent valuation remains astatine a discount to humanities levels, presenting bully worth comparative to nan underlying fundamentals.

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

This article was written by

JP Research floor plan picture

A passionately funny analyst.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga

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