Looking For A Good Stock, Then BAP It Hit Me
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I continue to be impressed by the opportunities presented by international financial institutions. I recently found that multiple Canadian institutions might represent good values. Even with these Canadian banks selling for around their growth rate, and growing earnings and dividends, there is a Peruvian bank that looks even better. I came across Credicorp (NYSE: BAP), by doing a search on Motley Fool CAPS Screener for companies with at least 20% prior earnings growth. Let me take you through the numbers and you tell me if you see the same opportunity I do.
Valuation & Future Earnings Growth
Credicorp is a bank that offers a range of financial services in Peru, Bolivia, and Panama. The company currently sells for 13.30 times 2012 expected earnings, but the company is expected to grow earnings at 14.81% over the next 5 years. The company is trading at the higher end of its 5 year P/E ratio range. However, there are factors that make me believe this could be just the beginning. From the banks I've examined, international bank earnings are expected to outpace domestic bank earnings. This A good example, is one of Credicorp's foreign bank competitors Banco Santander (NYSE: SAN). This international institution sells for just 7.30 times forward earnings, and is expected to grow by 12.10%. As you can see, international exposure can be profitable and can also avoid some of the issues of high regulation in the U.S.
Organic Growth
Credicorp also offers excellent organic growth. Look at the company's sales and net income growth in the last 4 years:
Revenue Last 4 Years (in millions):
Net Income Last 4 Years (in millions):
You can tell this is a company that is growing at a steady pace. One factor that certainly leads to this superior growth is the higher growth in certain international economies. GDP growth in Peru was just 0.9% in 2009, but jumped to 8.8% in 2010, and 6.9% in 2011. This higher growth combined with a more efficient commercial banking business, lead to significant improvement in net income and cash flow. Credicorp also restructured its second insuarance division in the last two years, which lead to higher earnings from their health insurance business. Their investment management business also benefited in 2011 from a better investment climate
Looking at cash flow, Credicorp has seen a massive improvement in the last few years as well. Three years ago, Credicorp showed net cash from operations of $452.22 million, in the last full year reported, net cash from operations jumped to $3.2 billion. There were several factors that drove this cash flow improvement. Aside of the improved efficiencies noted above, the company's multiple subsidiaries also improved their operations. Banco de Credito BCP, for instance, saw a 21.3% improvement in year-over-year net income. This same subsidiary saw an increase of 25.3% in financial margin, and fee income jumped over 14%. A new acquisition, Financiera Edyficar which specializes in micro-lending, also experienced significant growth with an over 40% jump in loans. Banco de Credito BCP Bolivia showed huge growth as well, with significant organic growth leading net income to jump over 40% as well. As if the subsidiaries were competing to see if they could all get to 40% growth, the Grupo Pacifico portion of Credicorp (their insurance and and complimentary services company) saw 38% net income growth in the last year. Clearly this is a company firing on all cylinders.
Dividend Yield & Growth
Credicorp pays a current yield of 1.78%, which might not seem like much. However, if you look at the company's dividend growth, this tells a much more interesting story. In the last 5 years, the company has grown its dividend by 10.67%. If the company continues this growth rate, in 5 years the effective yield would be 2.60%, in 10 years, this jumps to over 4%.
Conclusion
With good organic growth, good cash flow, and a growing dividend, Credicorp seems like a good bet to play the expansion in international banking. With expected earnings growth of near 15%, and a yield of 1.78%, shareholders are getting growth and income. The fact that the company already trades at a discount to its growth rate, could allow some multiple expansion. Two other positive factors come up when looking at Credicorp. First, is the company has beaten earnings in 4 of the last 4 quarters, beating estimates by over 10% on average. Second, analysts have been raising their estimates for both 2012 and 2013. Finding a company that is growing revenue, earnings, and dividends is hard enough. Finding a bank that can do all three is even harder. When it comes to future growth, Creditcorp sees multiple ways to expand its opportunities. The new Peruvian administration is seeking for social inclusion. This is right up the alley of the leading financial institution in the country. Credicorp can leverage its different subsidiaries and offer micro-loans, traditional banking, insurance, and investments to all classes of citizens. In addition, the company should benefit from the regionalization of the Latin American countries. With Credicorp's commercial clients reaching to take advantage of opportunities across borders, the company becomes the lender of choice. Credicorp stock symbol reminds me of the old Batman cartoons. Sometimes you go looking for a good stock, and BAP one smacks you right in the face. I'll be placing my green thumbs-up on BAP today on CAPSCall. Let me know what you think in the comments section below.
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