Analysts give thumbs up to Banorte's purchase of Afore Bancomer

Bnamericas Published: Thursday, November 29, 2012
Banorte's recently announced purchase of BBVA's (NYSE: BBVA) Mexican pension fund unit Afore Bancomer is seen as positive by analysts as it will be immediately accretive for the Mexican company, but doubts arise as to how it will be financed. The US$1.6bn acquisition will be made through Afore XXI Banorte, the pension fund jointly owned by the group's banking unit Banorte and Mexican social security agency IMSS, which will each pay 50% of the price. According to UBS's strategist Philip Finch, the deal could add 5.2% to his 2013 earnings per share (EPS) estimate for Banorte and he expects consensus earnings expectations to move up on the back of this deal. The transaction multiple of 12.9x trailing price/earnings (P/E) is below Grupo Financiero Banorte's 16.6x, Credit Suisse said in a research note. "If we consider a 19% growth in Afore Bancomer's net income for 2013, we reach a 2013 estimated P/E of 10.9x for Afore Bancomer, vs. 12.9x for GFNorte. We thus welcome this transaction as we believe it is indeed accretive for Banorte's shareholders, with estimated EPS accretion of 4.5% for 2013." Credit Suisse also believes the attractive transaction price improves Grupo Financiero Banorte's acquisition track record, following the rich multiples it paid for local financial group Ixe two years ago. Barclays Capital's analyst Fabio Zagatti agrees that the transaction should be immediately accretive to Banorte. "We suspect there would be significant synergy opportunities from the joint operation of Afore Bancomer and Afore XXI Banorte, particularly in back-office related activities," he wrote in a research note. "From a revenue synergy stand-point, it is still unclear to us if Banorte would be able to cross-sell its own banking products to 'former' BBVA's pension clients." UBS's Finch estimates additional revenues of 900mn pesos (US$69.5mn) and 400mn pesos in synergies for Banorte. "We view the deal positively as it allows Banorte to grow in a high ROE business, with limited capital requirement and good growth," he wrote in a report. HOW WILL IT BE FINANCED Banorte said it has enough resources to fund its share of the deal, using its capital and "through other liquidity sources." According to Zagatti, Banorte's statement suggests management may consider using other more tax-efficient alternatives, such as debt, to finance the acquisition. "Banorte had over US$30bn in cash equivalent resources as of 3Q12, so we would not expect it to have to raise equity for this transaction," he wrote. UBS's Finch also thinks Banorte has no need to raise capital at the moment, and that if the acquisition is funded with credit lines, the impact of the purchase on the banking unit's Tier I capital (currently at 11.6%) would be minimal. The deal is expected to close in 1Q13 and will create the largest retirement savings manager in Mexico with a 28% market share in terms of assets under management. The transaction is subject to local pension regulator Consar's approval.

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