Banco do Brasil's Q4: Decent Results, Soft Guidance, I Remain Cautious

2025-02-22 04:45:00 ET

Summary

• Banco do Brasil's bullish thesis is supported by its dividend distribution and a valuation discount compared to private peers due to its government ownership.
• The ADR has rallied nearly 30% in 2025, driven by a rebound in Brazilian stocks, though it remains down 13% over the past 12 months.
• Banco do Brasil's 4Q24 results beat market expectations, with growth in its loan portfolio and strong treasury performance. However, credit quality concerns persist, especially in the agricultural sector.
• The 2025 guidance came soft, with the bank projecting ~2.9% annual growth, with profitability pressures due to rising credit costs and expected high defaults in the agribusiness sector.
• Despite a potential 23% upside based on the dividend thesis, the stock remains discounted at 0.88x book value, reflecting the market’s historical view of state-owned banks, limiting the potential for significant gains.

Investment Thesis

Banco do Brasil ( OTCPK:BDORY ) is Brazil's main state-owned bank on the commercial and investment side, where its bullish thesis is based on dividends and a discount on its valuation versus private peers precisely because of its exposure to Brazilian government ownership.

Despite being down 13% in the last twelve months, the stock is rallying almost 30% over the course of 2025, driven mostly by a macro rebound on Brazil, with stocks correcting the sharp falls of 2024 marked by a progressive increase in interest rates as the country's inflation falls below the Brazilian Central Bank's target and a sharp devaluation of the exchange rate....

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