BB reassures analysts on current growth strategy, asset quality, cost control

Tuesday, June 28, 2011

Federally controlled banking giant Banco do Brasil (BB) reassured analysts that its current business strategy is solid with a focus on expanding business volume and profitability by tapping into its existing client base and winning new customers.

Barclays Capital analysts Roberto Attuch and Fabio Zagatti said in a research note that the most interesting point following a meeting with management was the importance of profitability for BB's executives.

"[BB's] CEO himself acknowledged the key challenge for [the bank] will be to make the most from existing and new business fronts. And we liked that," Attuch and Zagatti wrote, adding that management confidence is high at BB and decisions are made based on the assessment of their true capabilities, while investment opportunities are frequently revisited.

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Barclays highlighted as examples of BB's strategy its integration with São Paulo state bank Nossa Caixa, the partial acquisition of local bank Votorantim, the purchase of Patagonia in Argentina, a business venture with rival bank Bradesco (NYSE: BBD) in Angola, and the recently acquired banking rights of the postal service's Banco Postal.

The Barclays analysts said that BB poses all the conditions to make the most of its franchise.

For their part, Deutsche Bank's (NYSE: DB) Mario Pierry and Tito Labarta, said that BB's management highlighted the potential of the bank's insurance business and continued commitment to cost control, a research note reads.

Regarding the insurance business, Pierry and Labarta noted that "BB recently restructured its insurance business and expects its contribution to the bank's bottom line to increase to 24% by 2013 from the current 13%, buoyed by is strategic alliance with [Spain's] Mapfre (for the auto, P&C and individual segments) and Odontoprev (in the dental segment)."

Barclays Capital has a 1-overweight rating on BB's stock, noting that it is trading at almost a 30% discount to its private sector peers. Deutsche Bank has a buy recommendation for the stock "on attractive valuation."