Santander Brasil: Decent Investment with potential mid-term upside

Santander Brazil is the fourth-largest bank in the country. Unlike in most developed countries where small banks and credit unions are always present, in Brazil, the bank industry has a well-established oligopoly, where the 4 major banks have around 70% of the market share together. This oligopoly, along with the high switching-cost in the bank industry, gives these 4 banks a good pricing advantage.

The bank industry in Brazil is also conservatively regulated and highly lucrative, with spreads north of 10%. These two factors reduce considerably the risk for small investors in these banks.

Santander Brasil has around $200 Billion in assets and 2,000 branches. While it still does not have the profitability shown by Banco do Brasil, Itau Unibanco and Bradesco; Santander’s forecast is to grow its credit portfolio faster than the competition in the next years and reach that level of profitability. Because that profitability is currently not built into the stock price, if they really deliver what they are promissing, the stock will adjust considerably in the next years. That has proven to be hard to achieve in the recent years though.

Easy Brazil Investing Rating

Santander benefits from the banking industry fundamentals in Brazil that is very favorable with high switching-cost, oligopoly, conservative regulation and high spreads.

These factors along with the exposure to a fast-growing market, gives Santander a solid investment case which receives the 4 stars EBI Rating. In the banking industry, Itau Unibanco and Bradesco still has a better rating due to their higher profitability and larger scale.

Banco Santander Brasil S.A.

ADR Ticker BSBR
Bovespa Ticker SANB11, SANB3, SANB4
Investor Relations Website http://www.ri.santander.com.br/Default.aspx
Industry* Banks, Insurance
EBI Rating 4-star

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