UBS downgrades Credicorp's stock to neutral, Deutsche Bank maintains hold rating

Wednesday, June 8, 2011

Swiss investment bank UBS (NYSE: UBS) has downgraded its rating to neutral from buy on Peruvian diversified financial conglomerate Credicorp's (NYSE: BAP) stock, while Deutsche Bank (NYSE: DB) took a more cautious stance and maintained its hold rating.

In a research note, UBS's Alcir Freitas wrote that the downgrade was based on higher political risk, following the election of left-of-center Ollanta Humala as Peru's next president. "We believe the market will further increase cost of equity to incorporate the political uncertainties in Peru."

In addition to the ratings downgrade, UBS lowered Credicorp's year-end price target from US$123.2/ADR to US$107/ADR on the estimate that the company's cost of equity will increase by 10%, or 110 basis points, to 12.25%.

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Freitas added that UBS's new price target does not incorporate lower GDP growth or any FX devaluations as a result of a drop in foreign investments.


For its part, Deutsche Bank acknowledged that the political uncertainty following Humala's victory in Sunday's (June 5) runoff election could impact Credicorp.

"The uncertainty surrounding Humala's presidency could impact GDP growth, and in turn affect loan growth and asset quality, leading to lower ROEs for the bank," analysts Tito Labarta and Mario Pierry wrote in a research note.

Still, the bank kept its hold rating on Credicorp's stock, but lowered its year-end price target to US$94/ADR from US$112/ADR. Labarta and Pierry did note that the appointment of a "market-friendly" cabinet could imply a continuation of current favorable economic policies.

Credicorp owns Peru's largest lender, Banco de Crédito del Perú (BCP), as well as the country's biggest private pension fund manager, Prima AFP. It also operates in the life, P&C and health insurance markets under the name Pacífico Insurance Group.