SAO PAULO Grupo BTG Pactual SA's stock is undervalued based on its ability to outperform peer banks in Latin America, where investment-banking and asset management activities remain underpenetrated, analysts at Morgan Stanley & Co said on Tuesday.
In a client note, analysts led by Jorge Kuri transferred their coverage to the newly created stock units of Banco BTG Pactual SA (BPAC11.SA), setting an "overweight" recommendation on the stock. Units are a blend of common (BPAC3.SA) and preferred shares in Banco BTG Pactual.
Kuri and his team set a price target for the Banco BTG Pactual units at 28 reais, representing a 57 percent potential for gains based on Friday's close at 17.86 reais.
According to the analysts, units of Banco BTG Pactual are currently priced at 0.9 times book value with estimated return on assets of 2.1 percent and return on equity of 14 percent this year. Meanwhile, shares of rival Banco Bradesco SA (BBDC4.SA) trade at twice book value ratios, with similar ROE and almost half BTG Pactual's return on assets, they said.
A spokesman at BTG Pactual declined to comment.
Having gone through significant restructuring in the wake of founder and former Chairman André Esteves's arrest in November 2015 related to a corruption scandal in Brazil, BTG Pactual is focusing on growth again. BTG Pactual (BBTG11.SA) is Latin America's largest independent investment-banking firm, with leading positions in sales and trading as well as asset and wealth management across Brazil and the region.
"We like the new, narrower focus on the core investment banking activities the company is undertaking," Kuri wrote.
Units of Banco BTG Pactual surged 3.9 percent to 18.30 reais on early Tuesday afternoon trading in São Paulo.
Chief Executive Officer Roberto Sallouti has tried to bolster investor confidence after the scandal. This sparked a crisis of investor confidence that sent the lender's shares and bonds into a tailspin and forced it to dismantle trading positions and sell assets to cope with massive client fund withdrawals.
Sallouti is also protecting capital to pave the way for faster growth in core activities like investment banking, securities trading and money management.
Apart from growing in distressed debt and other high-return activities, BTG Pactual is currently setting up a brokerage in Argentina, where it expects to take advantage of growing demand for local equity and bond transactions, a person familiar with the plan told Reuters recently.
(Reporting by Guillermo Parra-Bernal; Editing by Cynthia Osterman and Lisa Shumaker)