Focus On Oil, Gas, And Mining Sectors Will Offer Significant Long-Term Opportunities

Key Takeaways

• The strategic shift to retail lending and digital transformation aims to improve profitability and expand the loan book efficiently.
  
• Sector-specific growth and product expansion may drive revenue, aided by a stable macroeconomic environment supporting lending and net interest margins.
  
• Grupo Supervielle faces challenges from retail loan costs, potential economic volatility, capital adequacy concerns, regulatory risks, and intense competition affecting margins and growth.

Catalysts

A financial services holding company, provides various banking products and services in Argentina.

• The company is completing a digital transformation initiated in 2020 aimed at expanding its loan book and strengthening its deposit base, which could drive revenue growth and increase net interest margins.
  
• A strategic shift towards higher-margin retail lending is expected to optimize capital efficiency and boost profitability, likely improving net margins and earnings.
  
• Invertironline, Grupo Supervielle's digital retail brokerage platform, is expanding its product offerings and integrating deeper into the banking ecosystem, which is expected to increase fee income and enhance earnings.
  
• There is a strong focus on sector-specific growth, such as in oil, gas, and mining, offering significant long-term opportunities, potentially driving revenue growth and higher profitability.
  
• The company anticipates a more stable macroeconomic environment with lower inflation and interest rates, which could lead to a more favorable lending environment, supporting loan growth and improving net interest margins.

Grupo Supervielle Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Grupo Supervielle's revenue will grow by 10.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.1% today to 16.4% in 3 years time.
• Analysts expect earnings to reach ARS 195.6 billion (and earnings per share of ARS 538.03) by about March 2028, up from ARS 125.2 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 19.0x on those 2028 earnings, up from 11.7x today. This future PE is greater than the current PE for the US Banks industry at 11.7x.
• Analysts expect the number of shares outstanding to decline by 1.12% per year for 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.

Grupo Supervielle Future Earnings Per Share Growth

Risks

• The anticipated gradual portfolio shift towards a higher proportion of retail loans may pressure Grupo Supervielle's cost management as retail loans typically require more resources for management compared to corporate loans, which could adversely affect cost efficiencies and net margins.
  
• Although there is a positive outlook for the Argentine economy, any unanticipated rise in inflation or a sudden interest rate hike could reduce loan demand and increase defaults, impacting the bank's interest margins and asset quality.
  
• Operating from a strong Tier 1 capital base is essential, but Grupo Supervielle's intention to operate with a Tier 1 ratio potentially as low as 11% in the future may raise concerns about capital adequacy, especially if loan growth outpaces deposit growth or unexpected losses occur, affecting overall capital strength and financial resilience.
  
• There is inherent risk in Argentina’s volatile macroeconomic and regulatory environment, which could lead to unexpected devaluation or policy changes, potentially undermining competitiveness and impacting earnings due to higher funding costs or reduced demand for financial services.
  
• Intense competition from both fintech firms and traditional banks might squeeze Grupo Supervielle’s net interest margins as it attempts to maintain or increase its market share, which could impair its revenue growth and profitability prospects in the evolving banking landscape.

Valuation

• The analysts have a consensus price target of ARS4540.0 for Grupo Supervielle based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ARS1193.1 billion, earnings will come to ARS195.6 billion, and it would be trading on a PE ratio of 19.0x, assuming you use a discount rate of 24.7%.
• Given the current share price of ARS3360.0, the analyst price target of ARS4540.0 is 26.0% 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.