Analyst Note| Michael Miller |
No-moat rated Itau Unibanco posted decent second-quarter results, with net income of BRL 6.8 billion growing 3.6% quarter over quarter and 34.8% year over year. Itau enjoyed another quarter of strong loan growth with its loan book growing 5.9% sequentially. The larger loan book was the primary force behind operating revenue increasing 11% from last year’s quarter. However, Itau’s good results are overshadowed by increasing economic uncertainty. Inflation has been an ongoing concern for Brazil during 2021, a consequence of fiscal stimulus and external supply shocks, and pressure has intensified in recent months. Inflation in Brazil is now running above 10%, rising from just 4.5% in January. As we incorporate a higher probability of economic fallout from inflationary pressure on the Brazilian economy, we are lowering our fair value estimate for Itau from $5.00 to $4.60. Roughly $.20 of the decrease comes from lower loan growth estimates, $.30 from higher credit loss assumptions, and $.20 from a weaker Brazilian real since our last update. These adjustments were offset by higher projected net interest margins.