On Monday, JPMorgan (NYSE:JPM) initiated coverage on shares of Banco del Bajio SA (BBAJIOO:MM) (OTC: BBAJF), assigning a Neutral rating to the bank's shares with a price target set at Peso62.00.
The financial institution is acknowledged for its strong presence in Mexico's Bajío region, holding an 18% share of the area's commercial loans, a region known for contributing over 20% to the nation's exports and typically experiencing faster GDP growth.
Banco del Bajio's niche approach to small and medium-sized enterprise (SME) lending is highlighted as a positive factor, with the bank consistently outperforming the system in commercial loan growth. The bank is also recognized for its exposure to the near-shoring trend and an attractive dividend yield of 8.5%.
Yet, concerns were raised regarding the bank's sensitivity to interest rates, which could pose challenges due to the anticipated easing cycle in Mexico's monetary policy, potentially impacting margins.
The forecast for Banco del Bajio's return on equity (ROE) is expected to normalize from its peak of 25-30% to approximately 19% by 2026. This adjustment suggests that earnings growth may remain stagnant over the next two years despite predictions of loan growth.
The analysis concludes that while the bank's fundamental story and growth potential are favorable, the short-term outlook appears to have negative momentum, leading to the Neutral rating.
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