BBD - Banco Bradesco

[Nomad]

I'm curious to know if any of you have looked at Bradesco. BBD is, at least in my opinion, a very prudently managed Brazilian commercial bank that has consistently generated > 15% ROEs and 1% ROAs despite being less levered than its main competitors. BBD also has an insurance arm that has strong market share in Brazil.

 

They've been around since 1947 and have survived military dictatorship, hyperinflation, and Brazil's latest recession, which has been the single worst on record. Although provisions spiked during Brazil's most recent troubles, BBD still generated positive earnings throughout, and provisions have declined recently as Brazil recovers.

 

The banking industry in Brazil is fairly consolidated; around half of the market belongs to state-owned institutions like the Caixa Econômica Federal and Banco do Brasil. In the remaining private sphere, Bradesco's main competitor is Itaú. Investors seem to like ITUB more than BBD, as ITUB has been more profitable in recent years and has operations across South America. Bradesco, by contrast, is focused on Brazil and does not have any significant international revenues. BBD has about 5,000 branches in the country and recently acquired HSBC Brasil. You can find BBD everywhere (they have even operated banking barges on the Amazon river).

 

I personally prefer BBD to ITUB because BBD seems more focused on its core competency, which is Brazil. Their LTD ratios have also been much more conservative than ITUB's (in the 70s IIRC). I also like the insurance arm, which continues to grow. Management does not seem to be as obsessed with "empire building" as the leadership of ITUB, and most of the executives have been at the bank for decades. BBD also has a large long-term shareholder, the Fundação Bradesco, that owns a huge portion of the outstanding shares. The FB has a mission that seems similar to the mission of the Hershey Trust in the US, as it operates schools for low-income Brazilian children.

 

The bank was very cheap earlier this year but has appreciated since then. I still think that BBD offers good value in an emerging market for those who are willing to look past the political risks (expropriations and state interference seem to be the concerns of many investors - I think the risk of the former is miniscule, while the latter has always been present but has not stopped ITUB or BBD from being profitable). I plan to hold BBD for at least 10-20 years; it appears that Brazil's nascent institutions may finally be beginning to function and root out corruption, as the Lava Jato case shows. If political and economic reforms succeed, Brazil's growing middle class could drive strong demand for financial services, and BBD is well-positioned to capture much of that demand.

 

Thoughts?

 

Full disclosure: Long BBD at a basis lower than the current share price

[Nomad]

Looking for your opinions - am I missing something here? Would love to hear from those of you who have looked at financials or Brazilian shares in the past.