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Peruvian Profits at Creditcorp
08/15/2013 10:00 am EST
As contrarians, we buy when others sell to get great prices on attractive growth companies. One contrarian idea is about a company, which has become one of Peru's largest banks, asserts Benjamin Shepherd, of the Global Investment Strategist.
Peru is a country of about 30 million people, but only about 30% of the population has ever had a bank account.
But as GDP growth has averaged about 6% annually over the past few years, GDP per capita has risen to more than USD6,000 per year, lifting millions of Peruvians out of poverty.
As a result, the country's banking sector is undergoing a dramatic transformation, as banks operating on a nationwide basis supplant smaller, more localized institutions.
Credicorp (BAP) has been steadily grabbing market share from competitors by enlarging its national footprint, maintaining better than 26% annual growth in branches, automatic teller machines, and banking agents, and pushing outside of the capital city of Lima and into more rural areas.
At the same time, the total number of transactions the bank processes on a monthly basis has risen from 29.8 million in 2007 to 78.8 million in the first quarter of this year.
In addition to offering traditional banking services, Credicorp also has one of Peru's largest insurance operations, is a major investment bank, and runs a number of pension funds. The company is also a major player in Peru's microfinance market, holding 50% market share in loans under PEN5,000.
Thanks to its conservative underwriting practices, Credicorp has also kept its overall 90-day delinquency rate at about 5% of total loans—one of the lowest in the Peruvian banking industry—and has the lowest charge-off rate in the country.
Less than one-sixth of Peruvians hold mortgages and less than a quarter of them use credit cards. Therefore, despite Credicorp's rapid growth over the past decade, there is still plenty of upside ahead.
It's also trading extremely cheaply, due to the general malaise in the region, commanding a forward price-to-earnings (P/E) ratio of just 9.4 and trading at just 11.7 times trailing twelve-month earnings.
That favorable valuation comes despite the fact that earnings per share (EPS) are expected to grow by 12.8% this year to USD11.17, and another 12.4% in 2014 to USD12.55 in EPS. A play on Peru's strong economic health and steady growth, Credicorp is a buy up to $130.
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