Argentina's Expected 55% GDP Growth Will Open Up Banking Opportunities

Key Takeaways

• Economic recovery in Argentina and digital shifts enhance BBVA Argentina's revenue and net margins through increased banking demand and operational efficiency.
  
• Strategic focus on market share and asset quality, along with treasury management, stabilizes net interest margins and boosts profitability.
  
• Higher operating expenses and rising nonperforming loans may pressure net margins and affect BBVA Argentina's profitability amid regulatory uncertainties and exchange rate volatility.

Catalysts

Provides various banking products and services to individuals and companies in Argentina.

• The anticipated economic recovery and inflation moderation in Argentina, with GDP expected to grow by 5.5% in 2025 and inflation converging to around 30%, could lead to improved economic conditions, increasing demand for banking services, thus boosting BBVA Argentina's revenue.
  
• A shift towards digital channels, with 88% of new customers acquired digitally by the end of 2024, is expected to reduce customer acquisition costs and improve operational efficiency, potentially enhancing net margins.
  
• The transition from Central Bank instruments to treasury debt and efforts to manage securities portfolios with longer-term fixed-rate securities could help stabilize net interest margins, despite falling interest rates, impacting earnings positively.
  
• The expansion in loan growth, particularly in the private sector, with expected real-term growth of 60% to 65% in 2025, is likely to significantly increase BBVA Argentina's revenue from interest income.
  
• The bank's strategic focus on increasing its market share in loans and deposits through competitive offerings and service improvements, along with maintaining strong asset quality, could bolster net margins and profitability in the financial statements.

Banco BBVA Argentina Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Banco BBVA Argentina's revenue will grow by 11.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.0% today to 37.8% in 3 years time.
• Analysts expect earnings to reach ARS 1833.4 billion (and earnings per share of ARS -2.29) by about March 2028, up from ARS 353.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.7x on those 2028 earnings, down from 13.2x today. This future PE is lower than the current PE for the US Banks industry at 11.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 24.69%, as per the Simply Wall St company report.

Banco BBVA Argentina Future Earnings Per Share Growth

Risks

• BBVA Argentina reported a 39.6% quarter-over-quarter decrease in net income for the fourth quarter of 2024 due to higher loan loss allowances and lower net fee and interest income, which could negatively impact profitability and earnings.
  
• The net interest margin (NIM) fell from 37.3% in 2023 to 35% in 2024, showing the impact of aggressive cuts in interest rates on net interest income, suggesting potential risks to revenue and earnings from further rate reductions.
  
• Operating expenses increased, driven by personnel and administrative expenses, potentially pressuring net margins and reducing income if expenses continue to rise disproportionately compared to revenues.
  
• Nonperforming loans increased in the context of rapid loan growth, which, if unchecked, could impact asset quality and result in higher loan loss provisions, affecting net income.
  
• Uncertainty regarding exchange rate movements and regulatory changes could lead to market volatility, impacting revenues, particularly if the peso appreciates unexpectedly or if policy changes affect the cost of capital or financial operations.

Valuation

• The analysts have a consensus price target of ARS11870.0 for Banco BBVA Argentina based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ARS15200.0, and the most bearish reporting a price target of just ARS8540.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ARS4855.4 billion, earnings will come to ARS1833.4 billion, and it would be trading on a PE ratio of 7.7x, assuming you use a discount rate of 24.7%.
• Given the current share price of ARS7630.0, the analyst price target of ARS11870.0 is 35.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.