Banco Macro (BMA) moved into the top 5 of Barchart’s Top 100 Stocks to Buy on Monday, rising 14 spots from 19th to 5th, with a weighted alpha of 228.81, higher than its 52-week return of $228.05. Its stock is up 36% in the past month alone.
It can’t possibly keep moving higher, can it? I think it can. And not just because I love Latin American stocks.
Latin America continues to be an underdog in global finance. Despite its economic and political instability, the region is full of possibilities and hope.
“The region’s central task, however, remains boosting lackluster growth rates. The report forecasts that regional GDP will expand by 1.6 percent in 2024. GDP growth of 2.7 and 2.6 are expected for 2025 and 2026. These rates are the lowest compared to all other regions in the world, and insufficient to drive prosperity,” stated the World Bank’s April 2024 Economic Review.
I’ve always loved an underdog. Latin America remains one of my favorite places to find value.
Here’s why Banco Macro might be worth a closer look.
Company Background
Banco Macro was founded in 1985 as a non-banking financial institution by acquiring Macro Compañía Financiera S.A. For the next nine years, it operated as a wholesale bank specializing in issuing corporate bonds.
However, in 1994, it dramatically changed its business strategy, pivoting to retail banking in Buenos Aires. A combination of several acquisitions and organic growth brought it to today’s business, one of Argentina’s leading banks and the largest in number of branches, with 515 at the end of June.
One thing that you don’t see in large U.S. banks is family-controlled businesses. However, because banks are often smaller regarding assets in Latin America, families still play a big part in influencing their operations.
Banco Macro was founded by members of the Brito and Carballo families. They control 40.5% of the bank’s voting shares.
I view that as a positive. Others might not.
Current Financial Situation
In the second quarter ended June 30, the bank’s net operating income was 460.2 billion Argentine pesos ($477 million), down 53% from a year earlier, and 76% from Q1 2024.
Argentina is currently in a recession -- its GDP shrank by 1.4% in the second quarter -- due to the austerity measures implemented by President Javier Milei.
“During his first months in office, Milei fulfilled his promises to slash the deficit and reduce inflation. He transformed a fiscal deficit of 2.7 percent of GDP into a surplus of 1.2 percent of GDP by freezing pensions and public salaries as inflation continued, effectively reducing them,” stated Foreign Affairs contributor Maria Victoria Murillo on Sept. 23.
“He also increased taxes on imports and income, ended all public works projects, fired 30,000 public employees, and reduced energy and transportation subsidies for consumers.”
These moves reduced monthly inflation from 26% in December to 4% today. On an annualized basis, it remains over 250%. And we think we have it tough when it comes to rising prices.
The debate rages on about Milei’s ability to revive Argentina’s economy.
Banco Macro said in its Q2 2024 conference call that it expects the economy to recover in 2025, which should spur increased lending and higher profits.
What’s Working for Banco Macro
The bank’s private sector loan portfolio as of June 30 was 3.39 trillion Argentine pesos ($3.51 billion), up 5% from Q2 2023 and 15% from Q1 2024. It finished the second quarter with a 9% market share in private-sector loans.
Despite a significant decline in net interest income in the second quarter due to higher interest rates -- its net interest income was 173.12 billion Argentine pesos ($179.4 million), 55% lower than a year ago -- it still managed to generate a net interest margin of 21.7%, 90 basis points higher than the previous quarter.
Mortgage loans and personal loans increased by 8% and 29% in the second quarter compared to the first quarter, respectively, an indication that the Argentina economy has bottomed.
Another good sign on the loan front was its provision for loan losses in the quarter. They were down 26% from Q1 2024 and 20% from a year ago to 16.48 billion Argentine pesos ($17.1 million). Its non-performing loans to total financing ratio was reasonably low in the quarter at 1.23%, down 14 basis points from a year ago.
That said, the quarter's non-performing consumer loans ratio was 1.52%, the highest it’s been over the past year. However, its commercial loan portfolio’s non-performing ratio was 0.73%, 45 basis points lower than Q2 2023. It’s another sign that the economy is turning for the better.
On the deposit front, it increased its total deposits in the second quarter by 13% over Q1 2024 to 6.74 trillion Argentine pesos ($6.98 billion), falling 5% year-over-year. Its savings accounts and time deposits accounted for 69% of the total in the quarter. Its market share in private sector deposits, 88% of the total, was a healthy 8.1%.
There’s no question this is a good business and bank. However, Argentina’s not out of the woods yet, so Banco Macro might not be your best bet if you're a risk-averse investor.
The Bottom Line on Banco Macro
Of the six analysts covering the Argentina bank stock, there’s a mixed bag, with two rating it a Strong Buy, three having it as a Hold, and one a Strong Sell, with a target price of $89.17, more than 20% higher than where it’s currently trading.
The Barchart Technical Opinion says it's a near-term Strong Buy. That’s supported by its move into the top five of the Top 100 Stocks to Buy. It’s hit a 52-week high 34 times in the past 12 months, all coming in 2024.
Since listing its ADRs (American Depositary Receipts) on the NYSE in March 2006, its shares have gained 202%. That’s less than half the return of JPMorgan Chase & Co. (JPM) but still a reasonable performance for a South American bank.
Looking at its options activity today, the Jan. 17/2025 $80 call looks worthy of your consideration. The ask price as I write this is $4.40, a 5.5% down payment on 100 of its shares. With a delta of $0.34497, you can earn a 50% return (158% annualized) on your money by selling the call before expiration if it appreciates by $6.38 (9%) over the next 114 days or less.
And who knows, maybe it will blow through $80 after reporting Q3 2024 earnings in November.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
