Easing FX Restrictions And Lower PAIS Tax Will Boost Investment

Key Takeaways

• Economic recovery signs and easing FX restrictions could drive revenue growth and improve net margins through increased investment.
  
• Digital channel adoption and strong loan portfolio growth may enhance earnings and net interest income, supported by improved capital efficiency.
  
• Declining net interest income and inflationary pressures threaten BBVA Argentina's earnings, while digital channel reliance faces competitive challenges.

Catalysts

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

• Signs of economic recovery, such as the increase in industrial activity and the expected GDP expansion in 2025, may drive further growth in revenue.
  
• Gradual easing of FX market restrictions and the reduction of the PAIS tax could lead to increased investment and economic activity, potentially improving net margins.
  
• The shift to digital channels has resulted in a high percentage of customer acquisition and sales through these platforms, which could increase earnings by reducing operational costs over time.
  
• The significant growth in the loan portfolio surpassing inflation levels and the increased market share in private sector loans may boost net interest income in the future.
  
• Strong solvency indicators and a decrease in public sector exposure suggest improved capital efficiency, potentially leading to improved margins and earnings stability.

Banco BBVA Argentina Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Banco BBVA Argentina's revenue will grow by 35.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.5% today to 28.0% in 3 years time.
• Analysts expect earnings to reach ARS 1462.8 billion (and earnings per share of ARS -0.56) by about January 2028, up from ARS 202.4 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.8x on those 2028 earnings, down from 26.1x today. This future PE is lower than the current PE for the US Banks industry at 12.4x.
• 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 23.68%, as per the Simply Wall St company report.

Banco BBVA Argentina Future Earnings Per Share Growth

Risks

• The decline in BBVA Argentina's net interest income, primarily due to lower average market rates and reduced income from REPOs and CPI-linked bonds, poses a risk to its revenue generation capabilities.
  
• The significant quarterly decrease of 39.5% in net interest income could negatively affect earnings if interest income continues to fall at a higher rate than expenses.
  
• BBVA Argentina's exposure to potential inflationary pressures and exchange rate volatility, despite signs of stabilization, could impact net margins as adjustments in inflation-linked accounting heavily influence financial performance.
  
• The high inflation environment and ongoing currency fluctuations may continue to pressure the bank's operating costs and net income, particularly affecting its earnings if inflation-reduction efforts do not materialize as expected.
  
• The bank's reliance on digital channel growth for customer acquisition and service offerings may face competitive and operational challenges, impacting its ability to sustain and grow revenue if customer engagement does not keep pace with technological advancements.

Valuation

• The analysts have a consensus price target of ARS9836.5 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 ARS4473.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ARS5226.0 billion, earnings will come to ARS1462.8 billion, and it would be trading on a PE ratio of 7.8x, assuming you use a discount rate of 23.7%.
  
• Given the current share price of ARS8630.0, the analyst's price target of ARS9836.5 is 12.3% 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.