As we mentioned last week, Banco Santander Brasil will put together one of the largest IPOs of the year, attempting to raise almost $7 billion. We think the offering itself is fairly valued, and worth $13 per ADR, roughly in the middle of its offer range.
At the same time, we think Santander Brasil is primed to benefit from opportunities in Brazil's lucrative banking market. With the shares set to begin trading this week, Morningstar equity analyst Maclovio Pina presents his investment thesis on the bank below:
"Santander Brasil is the smallest member of Brazil's lucrative four-bank oligopoly, which controls about 60% of the system's assets. As with
Itau Unibanco (
ITUB) and
Banco Bradesco (
BBD), we think Brazil's conservatively regulated and highly profitable banking system, along with the country's attractive demographics, will provide lush grounds for Santander Brasil to profitably grow in years to come despite the short-term challenges it faces.
"
Banco Santander Central Hispano (
STD), Spain's largest bank, remains the majority stakeholder of Santander Brasil, a trait we view as an advantage. In our opinion, the Brazilian subsidiary benefits from the well-run Spanish group's vast experience in integrations and expansions. A clear example is its massive integration with Banco Real, which was purchased from ABN AMRO in 2008. Although far from finished, it has come a long way, with improvements in efficiency already surfacing. Further, the Spanish bank's broad reach, particularly in Latin America, often makes Santander Brasil the institution of choice when Brazilian businesses need a bank to help them develop their operations beyond their native country. We think this puts Santander Brasil in a unique position to gain market share.
"Both credit and insurance penetration are relatively low in Brazil, and all banks are aggressively courting Brazil's growing middle class. In our view, Santander Brasil is especially well-positioned to take advantage of this growth, as the bank is under-leveraged with its equity base equal to a whopping 20% of its assets (roughly twice Itau Unibanco and Bradesco).
